1 00:00:03,600 --> 00:00:06,040 Speaker 1: Welcome to Ask Fear and Greed, where we take your 2 00:00:06,120 --> 00:00:08,760 Speaker 1: questions and do our best to answer them. I'm Uchaele Thompson. 3 00:00:08,800 --> 00:00:10,360 Speaker 1: And good afternoon, Sean Aylmer. 4 00:00:10,840 --> 00:00:12,879 Speaker 2: Good afternoon, Michael, Sean. 5 00:00:13,080 --> 00:00:15,920 Speaker 1: Today's question comes from Mick and he's sent it in 6 00:00:16,200 --> 00:00:18,439 Speaker 1: via the website. He went along to Fearangreed dot com 7 00:00:18,480 --> 00:00:20,799 Speaker 1: dot au and send his question in there. You can 8 00:00:20,840 --> 00:00:23,160 Speaker 1: also do it by a LinkedIn and Instagram and Facebook 9 00:00:23,200 --> 00:00:27,400 Speaker 1: and a bunch of other ways. But Mix says, high team. 10 00:00:27,560 --> 00:00:30,000 Speaker 1: You guys do a great job, and I listen every day. 11 00:00:30,120 --> 00:00:32,000 Speaker 1: I've got to include this part short because I love it. 12 00:00:32,000 --> 00:00:32,280 Speaker 2: He says. 13 00:00:32,280 --> 00:00:34,440 Speaker 1: Sometimes I force my teenage kids to listen to the 14 00:00:34,440 --> 00:00:36,640 Speaker 1: Weekend Edition when we are stuck in the car together. 15 00:00:36,720 --> 00:00:38,559 Speaker 1: As you can imagine, they do not love this, but 16 00:00:38,600 --> 00:00:41,559 Speaker 1: I'm driving so they can suffer in their jocks. I 17 00:00:41,680 --> 00:00:45,360 Speaker 1: just love that because it's got so much colors. Josh, yeah, yeah. 18 00:00:45,440 --> 00:00:47,839 Speaker 1: And I feel like everyone should be forcing their family 19 00:00:47,960 --> 00:00:50,080 Speaker 1: to listen to the Weekend Edition. I do that with 20 00:00:50,120 --> 00:00:52,960 Speaker 1: my own family. Anyway. On with the question, Mick says, 21 00:00:53,760 --> 00:00:57,200 Speaker 1: I have a question for ask Fit for Ask Fear 22 00:00:57,240 --> 00:01:00,480 Speaker 1: and Greed, and it should be an easy one for Sean. 23 00:01:00,720 --> 00:01:03,440 Speaker 2: Oh Meck, put the mockers on me, go on, this 24 00:01:03,560 --> 00:01:04,760 Speaker 2: is setting you up. 25 00:01:05,200 --> 00:01:09,880 Speaker 1: Can you explain share buybacks in simple words? Mick says, 26 00:01:10,040 --> 00:01:12,280 Speaker 1: I tried to google it, but I can't work out 27 00:01:12,319 --> 00:01:16,119 Speaker 1: why the percentage share of the existing shareholders goes up 28 00:01:16,200 --> 00:01:20,200 Speaker 1: if the company buys back shares. I agree, it sounds 29 00:01:20,200 --> 00:01:21,520 Speaker 1: like an easy one for Sean go. 30 00:01:21,560 --> 00:01:24,440 Speaker 2: For It absolutely too easy for me to answer. Let's 31 00:01:24,440 --> 00:01:27,320 Speaker 2: just move on, shall we? Yeah, well then, thanks Mick 32 00:01:27,360 --> 00:01:32,200 Speaker 2: for your question. Anyway, it's a good question. Why does 33 00:01:32,200 --> 00:01:34,480 Speaker 2: the company do a share buy back? Let's start there. Well, 34 00:01:34,600 --> 00:01:36,280 Speaker 2: when a company has a bunch of cash, what can 35 00:01:36,319 --> 00:01:37,759 Speaker 2: it do? It can spend it. It might be able 36 00:01:37,800 --> 00:01:41,160 Speaker 2: to buy an asset. It might give a special dividend 37 00:01:41,640 --> 00:01:44,200 Speaker 2: or increase its dividends. Their shareholders get money back that 38 00:01:44,319 --> 00:01:48,080 Speaker 2: way or a one that they often do. Many companies 39 00:01:48,080 --> 00:01:51,440 Speaker 2: often do, And companies are always doing these rolling share buybacks, 40 00:01:51,440 --> 00:01:53,720 Speaker 2: and what they are doing is literally going to the 41 00:01:53,760 --> 00:01:58,160 Speaker 2: market and buying back their shares. The best way to 42 00:01:58,400 --> 00:02:01,680 Speaker 2: explain how they work is using an example. Let's say 43 00:02:01,680 --> 00:02:04,360 Speaker 2: there's one thousand shares out there and the company says, 44 00:02:04,880 --> 00:02:08,160 Speaker 2: I'm going to buy back ten percent of my shares. 45 00:02:08,720 --> 00:02:11,480 Speaker 2: They literally go to the market and buy back ten 46 00:02:11,480 --> 00:02:15,080 Speaker 2: percent of shares, so they end up with nine hundred shares. 47 00:02:17,360 --> 00:02:21,720 Speaker 2: Nine hundred shares. They're still making the same amount of money. 48 00:02:22,360 --> 00:02:25,040 Speaker 2: So let's say they're making ten thousand dollars every year. 49 00:02:25,639 --> 00:02:28,080 Speaker 2: That means they're making ten dollars per share on one 50 00:02:28,120 --> 00:02:32,240 Speaker 2: thousand shares. On nine hundred shares, it means they're making 51 00:02:32,400 --> 00:02:38,000 Speaker 2: eleven dollars or thereabouts per share. So earnings per share increases, 52 00:02:38,320 --> 00:02:42,160 Speaker 2: so the value of your share should increase. The whole 53 00:02:42,200 --> 00:02:45,160 Speaker 2: idea of share buybacks is when a company buys back 54 00:02:45,200 --> 00:02:49,079 Speaker 2: more shares those still holding onto those shares, the value 55 00:02:49,080 --> 00:02:53,520 Speaker 2: of that share goes up by that ten percent let's say. Now, 56 00:02:54,320 --> 00:02:59,280 Speaker 2: academic research doesn't suggest that this always happens that way, 57 00:02:59,360 --> 00:03:03,280 Speaker 2: but the bunch of other factors, the economy, what's happening 58 00:03:03,320 --> 00:03:06,360 Speaker 2: in the market, competitors, all sorts of things, which makes 59 00:03:06,400 --> 00:03:09,960 Speaker 2: it a bit difficult to judge exactly the impact of 60 00:03:09,960 --> 00:03:14,959 Speaker 2: the share buyback versus everything else. Companies do it regularly enough, though, 61 00:03:15,480 --> 00:03:20,120 Speaker 2: to suggest that they must work. Now that second part 62 00:03:20,280 --> 00:03:23,400 Speaker 2: I can't work out why percent share of existing shareholders 63 00:03:23,440 --> 00:03:26,160 Speaker 2: goes up if the company's buyers back shares. I think 64 00:03:26,200 --> 00:03:29,960 Speaker 2: what mix getting to there is if I thousand shares 65 00:03:29,960 --> 00:03:33,880 Speaker 2: an issue, I own ten shares ten on a thousand, 66 00:03:34,160 --> 00:03:36,360 Speaker 2: they buy back a hundred. I don't partake in that, 67 00:03:36,400 --> 00:03:37,840 Speaker 2: so I keep my shares, I don't send them back 68 00:03:37,840 --> 00:03:40,080 Speaker 2: to the company or anything like that. Well, then I 69 00:03:40,120 --> 00:03:43,320 Speaker 2: own ten shares in nine hundred shairs after the buyback 70 00:03:43,480 --> 00:03:48,080 Speaker 2: is complete. Therefore my percentage of ownership of that company 71 00:03:48,600 --> 00:03:53,560 Speaker 2: actually rises. So that's what share buybacks are about. Yeah, 72 00:03:53,760 --> 00:03:57,640 Speaker 2: and that's kind of why theoretically fewer shares on offer, 73 00:03:58,360 --> 00:04:01,080 Speaker 2: it shouldn't hurt earnings. It's not an earning thing. It's 74 00:04:01,080 --> 00:04:03,760 Speaker 2: actually just shares on offer, so your share should be 75 00:04:03,800 --> 00:04:05,880 Speaker 2: worth more, and that's how it works out. 76 00:04:07,040 --> 00:04:10,080 Speaker 1: But why does that benefit the company? Then? I don't 77 00:04:10,160 --> 00:04:12,840 Speaker 1: understand that, partner. I know you said that there really 78 00:04:12,880 --> 00:04:15,960 Speaker 1: isn't kind of a lot of the academic research behind it, 79 00:04:15,960 --> 00:04:19,200 Speaker 1: But why were they choosing that instead of, say, using 80 00:04:19,360 --> 00:04:24,159 Speaker 1: that additional money to go and invest further in expanding 81 00:04:24,160 --> 00:04:25,080 Speaker 1: the company for instance? 82 00:04:25,600 --> 00:04:28,520 Speaker 2: Two parts to that, The company is the shareholders, right, 83 00:04:28,560 --> 00:04:30,800 Speaker 2: the company is just this structure, but the beneficial owners 84 00:04:30,839 --> 00:04:33,040 Speaker 2: are the shareholders. So it is benefiting the company, i e. 85 00:04:33,480 --> 00:04:36,479 Speaker 2: The shareholders. The second part of that is why do 86 00:04:36,520 --> 00:04:38,479 Speaker 2: it that way? Why not give a special dividend? Why 87 00:04:38,480 --> 00:04:41,520 Speaker 2: not go and buy some other company that you might 88 00:04:41,520 --> 00:04:43,800 Speaker 2: make you more money in the future. There's always this 89 00:04:43,960 --> 00:04:46,440 Speaker 2: argument that boards can be lazy and just do share 90 00:04:46,480 --> 00:04:52,479 Speaker 2: buybacks or special dividends rather than looking for new investments. Maybe, 91 00:04:52,600 --> 00:04:54,479 Speaker 2: but it depends what industry you're in. If you're in 92 00:04:54,480 --> 00:04:57,200 Speaker 2: a tech industry and you're probably always trying to grab assets, 93 00:04:57,360 --> 00:04:59,120 Speaker 2: they're less likely to do a share buy bag. If 94 00:04:59,120 --> 00:05:01,520 Speaker 2: you're an oil and gas though, maybe you are more 95 00:05:01,600 --> 00:05:03,200 Speaker 2: likely to do share buyback because you don't want to 96 00:05:03,200 --> 00:05:06,000 Speaker 2: buy any more of those assets. Or if you're transitioning, 97 00:05:06,080 --> 00:05:07,640 Speaker 2: you're never doing a share buy bak. You're going to 98 00:05:07,680 --> 00:05:11,560 Speaker 2: end up buying renewable energy. So it's really a strategic 99 00:05:11,600 --> 00:05:15,159 Speaker 2: decision from the board and management about the best way 100 00:05:15,640 --> 00:05:18,640 Speaker 2: to use those the excess money they've got sitting there. 101 00:05:19,040 --> 00:05:21,960 Speaker 1: Because the banks have been doing it a lot, haven't they. 102 00:05:22,400 --> 00:05:24,880 Speaker 2: Yeah, So if you're yeah, the banks have I mean 103 00:05:24,920 --> 00:05:27,919 Speaker 2: there's a lot of companies that do it. With the banks, 104 00:05:28,839 --> 00:05:32,200 Speaker 2: it's hard for commonth Bank, Westpak National Australia Bank. Well 105 00:05:32,240 --> 00:05:34,320 Speaker 2: a INTD has just done this, So this exception to 106 00:05:34,360 --> 00:05:37,000 Speaker 2: the rule if they go and buy assets, what are 107 00:05:37,040 --> 00:05:39,520 Speaker 2: they going to buy now? A Z brought sun Court 108 00:05:39,640 --> 00:05:43,039 Speaker 2: so the business part of that so sorry, the banking 109 00:05:43,040 --> 00:05:45,200 Speaker 2: part of sun Corps. So that's where that comes into it. 110 00:05:45,880 --> 00:05:48,880 Speaker 2: But Commonwealth Bank Westpac, maybe they don't actually want to 111 00:05:48,880 --> 00:05:51,600 Speaker 2: buy another asset. They can do special dividends and they've 112 00:05:51,600 --> 00:05:54,400 Speaker 2: actually done a lot of special dividends in recent years. 113 00:05:54,640 --> 00:05:56,800 Speaker 2: Or they can buy back shares. In the end, it 114 00:05:56,880 --> 00:05:59,680 Speaker 2: is beneficial to the shareholder, which is the company or 115 00:05:59,680 --> 00:06:00,560 Speaker 2: who are the company? 116 00:06:01,120 --> 00:06:03,480 Speaker 1: Look, you know what I reckon Mick was right. I 117 00:06:03,520 --> 00:06:05,600 Speaker 1: reckon Mick was right in saying you could do this 118 00:06:05,640 --> 00:06:08,760 Speaker 1: one because you've just done it. I've asked you a 119 00:06:08,800 --> 00:06:13,839 Speaker 1: couple of extra questions, additional ones, just completely without notice. 120 00:06:14,520 --> 00:06:17,360 Speaker 1: And you know I'm going to give you. I'll give 121 00:06:17,400 --> 00:06:19,320 Speaker 1: you a mark out of twenty today, I'm going to 122 00:06:19,320 --> 00:06:20,760 Speaker 1: give you a seventeen and. 123 00:06:20,800 --> 00:06:25,320 Speaker 2: A half wow on the Michael Thompson scyale of marking. 124 00:06:26,279 --> 00:06:31,240 Speaker 2: That is pretty spectacular. And I like to say for 125 00:06:31,279 --> 00:06:33,640 Speaker 2: those listeners like Mick who listened to the weekend edition, 126 00:06:33,800 --> 00:06:39,040 Speaker 2: right special treat tomorrow because Michael's been away. He's just 127 00:06:39,080 --> 00:06:42,080 Speaker 2: back today. He is going to be the judge against 128 00:06:42,080 --> 00:06:44,280 Speaker 2: Adam and I and I expect those seven and a 129 00:06:44,320 --> 00:06:47,480 Speaker 2: half out of twenties to be coming through thick and fast, 130 00:06:47,640 --> 00:06:48,160 Speaker 2: but they don't. 131 00:06:48,200 --> 00:06:50,200 Speaker 1: Oh, it's just going to be savage. I've been looking 132 00:06:50,240 --> 00:06:52,440 Speaker 1: forward to this opportunity for a very long time. I 133 00:06:52,440 --> 00:06:54,839 Speaker 1: shall be introducing to merit points and a whole bunch 134 00:06:54,880 --> 00:06:57,560 Speaker 1: of other things. There is going to be melodrama like 135 00:06:57,600 --> 00:07:00,159 Speaker 1: you have never experienced it before, and that's going to 136 00:07:00,160 --> 00:07:06,360 Speaker 1: be from the judge. It's going to be quite the event. Look, Mick, 137 00:07:06,440 --> 00:07:09,120 Speaker 1: thank you very much for your question. And Sean, thank 138 00:07:09,160 --> 00:07:10,600 Speaker 1: you for answering it so admirably. 139 00:07:11,080 --> 00:07:12,240 Speaker 2: Thank you, Michael, Thank you Mick. 140 00:07:12,920 --> 00:07:15,200 Speaker 1: If you have your own question, then jump on to 141 00:07:15,280 --> 00:07:18,160 Speaker 1: the website Fearangreed dot com dot au and you can 142 00:07:18,200 --> 00:07:21,080 Speaker 1: send it through there or go to LinkedIn or Instagram 143 00:07:21,200 --> 00:07:23,880 Speaker 1: or Facebook and we shall pop your question on the 144 00:07:23,920 --> 00:07:26,080 Speaker 1: list and get to it soon. I'm Michael Thompson and 145 00:07:26,120 --> 00:07:27,520 Speaker 1: this is ask Fear and Greed.