fiprofessor

But Berkshire Hathaway does do stock buybacks.

The earnings per share certainly increases. But this is (at least theoretically) offset by the fact that the firm's assets have decreased. For example, if the buyback was paid for with cash, then prior to the buyback, the shares represented a claim of ownership not just on future earnings, but also on that cash reserve.

That said, this is all under a theoretical model (as in Miller-Modigliani theorem). In practice/empirically, there is reason to plausibly believe that e.g. the decision to announce a buyback has a signalling effect and so can increase share prices.

No, because the future cash flow per share is not reflected in the current market cap.

Perhaps you are thinking of share price instead: there it is true that dividends reduce share price, while buybacks are share-price neutral at least theoretically, though it is commonly believed by many people that they do affect price.

(Hence, under that same theoretical model, market cap must decrease if share price remains the same because market cap is total number of outstanding shares * share price. So if the former decreases while the latter stays the same, market cap must have decreased.)

Who would invest in or create a company that would never pay a dividend and never bought back its stock? How would shareholders ever yield gains from their investment?

Short of some entity buying all stock and taking the company private (to then withdraw profits), there would be no way to return profits to shareholders.

The companies currently not doing those things are in a growth phase, with the expectation that in the future they probably will be issuing dividends/buybacks.

Prior to the Bush era tax cuts, all dividends were taxed at the income rate, which I think explains the biggest motivation in the shift from dividends to buybacks in that era.

Nowadays, as you say, there is no difference in tax rates for qualified dividends. However, one big remaining benefit of buybacks is that a dividend forces one to incur a taxable event when the dividend is issued, even if one chooses to immediately re-invest the dividend in the company (as many people still in the accumulation phase of investing do). On the other hand, a buyback does not force those people to sell.

On the other hand, a buyback should lower the market cap of a stock, so cap-weighted index funds ought to sell and re-balance when a buyback is issued, so most index investors would seemingly end up selling. However, they end up being able to avoid most of the capital gains taxes by re-balancing through redemptions and heartbeat trades.

> And if you look at any graph of college costs vs wages over the past 40 years or so, they have simply skyrocketed.

Absolutely, no debate there. The particular surprising claim in question though was about whether they have declined in the past couple of years, relative to a peak in late 2010s. And there, measured either in CPI adjusted costs, or relative to real median wages, they have.

But of course, the drops are small, and it's only been about 1-2 years. I'm not sure this really indicates a sustained trend, or just the fact that college cost increases have (for once) lagged inflation over those 1-2 years.

Well, it's not worth it to bring this optimization to the attention of the CEO. But it definitely exceeds the engineer's weekly cost by a lot, so if it only takes a week, it's potentially worth it (modulo opportunity costs for other things to work on).

Spin it around: is it worth it for a sales person who makes $200k per year to spend a week to land a $50,000 per year contract? I think it potentially is, for the same reason, even if the organization as whole makes hundreds of millions of dollars a year.

Yes, but sometimes switching to arithmetic/absolute thinking is the right thing to do.

For example, suppose an engineer who is paid $200k per year can spend a week to implement an optimization that reduces costs by 0.1%. If that is 0.1% of something that costs $50 million per year, then that's not a bad use of time.

I think they will over time if PE deals start to implode or reveal themselves to be as bad as people claim. But the reaction will take a while to happen.

With partnership-based models, it's not necessarily the case that most of the doctors who owned their practices were necessarily that entrepreneurial. Many probably joined the practice and then became partners after a few years with buy-in and sweat equity. There's some risk and business management involved, but not the same as really doing your own thing. The path was laid out. (Kind of like lawyers at big law firms.)

The real entrepreneurs were the ones who initially founded a practice from scratch. But for some specialties where PE has taken hold, you need a group of people with enough capital to do that, negotiate contracts with hospitals for admitting privileges, wait-out a non-compete from a prior practice, etc. That takes time, and meanwhile, the net share of PE held firms may still increase for a while as other firms continue to sell out.

> A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes.

I think it's just the opposite: you'll be forced to close your short position when the PE company buys. When PE firms "take over" a public firm, they generally take it private, and the takeover involves buying all outstanding shares, typically at a premium over current share prices.

> Honestly though, I think the good times are over for PE, as most of the industry (and finance in general) has been cushioned by a low interest rate world, and as debt starts to cost real money we're gonna see a _lot_ of these bets unwind.

Maybe the current bets will unwind, but I'm not sure that means there won't be a good time era of another round of bets. After all, interest rates were very high in the 80s, and that was a heyday for PE, right?

> The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. Long if it's going to survive and grow; short if it's doomed. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.

But if the business is privately held (because the borrower used the loan to buy the business), then what market is the lender going long/short against in this hypothetical conspiracy? Other (public) businesses in the market? Potential investors when the PE firm sells and takes the business public?