Comment by noosphr

I guess it's simply the externalities issue. Finance people optimize finance, which among other things results in improved efficiency. But despite best intentions to map out all incentives that matter, it always fails to consider some aspects. Focusing on short-term profits, ignoring privacy, security or pollution because it's free, lobbying for favourable legislation that hampers competitors, etc.

These are things that don't show in a spreadsheet unless you're explicitly incentivized to look at them. But that's never the case because the number of KPIs is always finite while there are infinitely many aspects that could potentially be subverted.

It’s largely true. I believe Steve Jobs had some talk about this phenomenon; basically, at some point, the scale of an organization means the product people make less of an impact than the sales / finance people, and they slowly take over.

Then over the span of a few decades, what’s left is a shallow organization without real innovation.

Intel and Boeing are good examples of this.

That's what they're afraid of, and that's one of the reasons why they're doing the big management reorganization - too many managers leads to lots of overhead instead of excellence.

Indeed, finance people becomeing important is how you get 737-MAX disasters.

I'm not sure what the point is wrt ASML, they made good bets, they won their monopoly, their shareholders who funded the bets get to enjoy monopoly pricing. If they start cutting R&D and lose their crown, yes it's shame I guess but that's all there is. To expect a company to sell their goods cheaply when they are the only ones in the world who can them is asking for too much. It's great that they and their investors took the punt on EUV all those years ago, we probably would not have the chips we have today and all the economic benefits around it

Google is still the best search engine. YouTube is still the best video site. Android is still the best operating system. Chrome is still the best browser.

And on the side they built the best AI and the best autonomous ride service.

Not bad for a "hollow shell" of a company.

When you say "worse" shareholders will say: "globally dominant in multiple platforms".

Sure Android might be worse from a pure Linux perspective, but what shareholder has ever cared about that.

Gemini maybe? (and before that the alpha fold and alpha go), they do have things they are good at

Search, Android, Chrome, Chromebooks, Maps, Gmail, Youtube, Gemini.

They definitely have embarrassing failures (chat especially), and some are not as successful as you'd expect them to be (Gsuite, GCP). But overall I'd say they are doing pretty damn well.

Compare to Amazon for example. They've only ever had two really successful products: shopping and AWS. Alexa could have been too if they hadn't spent a gazillion dollars trying to monetise it.

Or Facebook. They've only ever had one successful product - the rest they bought after they were already successes.

I think they sort of failed upwards in chat space with their RCS push.

> Dividends are totally fine (from my perspective)

FWIW, companies are now opting for buybacks because it is more "tax efficient".

Stockholders have to pay taxes on dividends (immediately) but only pay capital gains on share price increases and only when they sell.

Notionally there's not a difference between dividends and buybacks. (That's somebody's theorem... Modigliani maybe?) The fact that our tax laws treat them so differently doesn't make much sense.

Why does it matter if people have to sell their shares to unlock value? Is it just the friction of small orders?

Buybacks for manipulating share prices and earnings per share are indeed silly. But they should also be trivial to compensate for by normalising on market cap instead of a single share.

Dividends in effect force you to sell while buybacks redistribute to people who want to sell/realize it. They are also more efficient tax wise.

The only good reason to pay out dividends instead of announcing buybacks is a view that your shares are overpriced. Then you can't buy them back without facing a potential lawsuit (you are making a company buy something you know is overvalued).

You've missed the point of my questions. The GP here thinks they're giving away their monopoly status by doing buybacks.

I think there's zero point to having a monopoly if you don't distribute the profits.

If you have some argument that dividends are better than buybacks I don't care.

If you want 100x returns - do you find a $500B company or a $5B one?

All ASML is doing is raising the share price. The investors that don't want a better deal somewhere else don't have to do a thing - they just have to not sell their shares. ASML is not deciding anything or signaling anything about future returns.

The market is the one sending the signal that there are better deals elsewhere. You can go from $5B to $500B. You can't go from $500B to $50T. There is no amount of R&D that will do that. If you picked a $5-6 billion company in 2008, and it was ASML, congratulations you now have >100x returns.

The inflection point isn't a point where buybacks increase, it's the slow/fast ride up to $500 billion.

The investors chasing 100x returns have already left. Whether the company buys its own shares or sits on its own cash, the net equity value is the same. The only signal it gives to investors is that they have more cash than they want to spend.

Three things:

1. From the perspective of shareholders, and for the moment ignoring taxes, buybacks and dividends are exactly economically equivalent. If a dividend happens, you get some cash. If a buyback happens, the value of your shares goes up. Crucially, the amount by which each share's price goes up is equal to what the per-share dividend would have been. It's a useful exercise to work this out and convince yourself that it's true.

2. Now let's stop ignoring taxes. If a dividend happens, you get taxed that year. If the value of your shares goes up, you don't get taxed that year. Instead, you get taxed whenever you sell, which might be later when you retire and are in a lower tax bracket, or after a period of some years when you get a lower capital gains tax rate.

3. Now let's think about the effect of dividends vs buybacks on the allocation of your portfolio as a shareholder. Neither changes the total value of your portfolio -- that was point number 1, plus just plain old conservation of dollars, modulo taxes -- but a dividend increases the proportion of your investment that's in cash, while a buyback keeps it constant. Let's say you auto-invest all dividends in the S&P 500 or equivalent index fund. Then dividends reduce your ownership stake in the company, while buybacks keep it constant.

For these reasons, most investors prefer (or ought to prefer) buybacks: they have the same economic effect as dividends but allow you to defer taxes to whenever is optimal for you. Also, and this is a smaller point, if a company does a dividend then you have to actively do something (that is, buy stock) in order to maintain the same proportion of your portfolio in that company. In other words, if you want 10% of your savings to be in X, and they do a dividend, then you have to take the cash and buy shares of X. The reason this is a smaller point is that at least in theory you can get your brokerage to do this for you automatically.

There are some nuances where point number 1 fails to hold: signaling, bad execution of the buybacks, and principal-agent conflicts. The big example of that final point is executive compensation tied to specific share prices. I'm not an expert in this area so I don't know, off the top of my head, if there's real evidence either way that this effect is very large, but it's one that people will bring up so everyone who thinks about this ought to know about it.

Dividends and capital gains have different treatment in a number of tax codes. In the UK for example when you have high income the dividend marginal tax is 39.35% but CGT only 24% with a higher tax free allowance (500 for dividends 3000 for cgt)

Buybacks and dividends are economically equivalent. They mostly differ in tax treatment.

> to be executed by 31 December 2028

So I don't think it's going to be executed at the absolute peak. But it does imply that the finance people in ASML believe that the stock is undervalued even if the market as a whole is at all time highs.

One could argue share buybacks are more tax-efficient.

Dividends are taxed. No company is going to argue they are overvalued either.