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ELI5: Stock Buybacks

Stock buybacks have been in the hot seat. Companies of all shapes and sizes are facing criticism for their "excessive" buyback programs. Today we breakdown what buybacks are and if they're really as bad as people say. What is a Stock Buyback? A stock buyback is exactly what it sounds like. A company buys back  stock. Also referred to as a  shares repurchase . Done either by  tender offer or in the open market . A tender offer is a proposal to shareholders which outlines the number of shares a company is willing to buy and the price they are willing to buy for. Shareholders can either accept or decline. There's no obligation on their end. More commonly, a company will simply repurchase shares in the open market. Why Would a Company Buy Back Their Own Stock? When companies have excess cash, buybacks are a way to distribute wealth to their shareholders. Buybacks reduce the number of outstanding shares, driving prices up and increasing shareholder

Three Books I'm Reading

The Great Depression, Big Mistakes, and The Algebra of Happiness. I really enjoy reading and want to start sharing some of my favourites.

How Does Robinhood Make Money?

Historically, trading was expensive. Decades ago, Wall Street would charge hundreds for a single trade. With the rise of discount brokerages, fees have steadily come down. Now commission-free trading is the norm. Robinhood pioneered commission-free trading - but if they don't charge commissions, how do they make money? Freemium   Gold Robinhood like a lot of companies gives out their app for free (just take it!). This helps attracts more users and enables faster growth. The "free" part is only applicable to their base service. Robinhood also has a paid service, Robinhood Gold . Paying $5 a month unlocks features such as margin and after-hours trading. This two-tier model is known as "Freemium". Idle Money Most investors have a couple bucks laying around in their account. Robinhood takes advantage of your idle cash by investing it to earn interest. You don't earn much on a few dollars, but Robinhood has over 10M users. The idle cash adds up fas

Leveraged ETFs For Buy-&-Hold Investors?

Leverage is powerful. It's even been argued that it should be a consideration for young investors . Given all the hype, buy-and-hold investors are trying to figure out how to get in on the action. ETFs are great, so would leveraged ETFs be even better? First, What Are Leveraged ETFs? Traditional ETFs look to match the returns of an index, leveraged ETFs look to amplify them. SPY , a traditional index ETF is designed to match the returns of the S&P 500, SPXL , a tripled levered ETF looks to 3X them! This is achieved through the use of debt and derivatives. The math to enable this is rather complicated and can leave you scratching your head. Long Term Leveraged Investing Over the long term, markets have historically returned about 10% a year. If we used a leveraged ETF, couldn't we get 30%? If this sounds too good to be true, because it is. ETFs like  SPXL  do provide 3X returns, but only for a single day. Leverage ETFs are rebalanced daily, meaning th

Playing Your Own Game

“The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.”  - Warren Buffett We all have a tendency to compare ourselves to others. We compare salaries, relationships, height. You name it, we compare it. It's natural to be competitive, to size each other up. It can even be healthy. Some people represent a higher standard that drives us to be better. Role models are important. However, without perspective, admiration can devolve into envy and discouragement. Seeing others succeed, especially those younger, can make you feel inadequate. You start to question your self-worth and your growth stalls. It's important to remember external comparisons are fundamentally flawed. People are too different to fairly compare. Those who have a higher net worth might come from a wealthy family. Those more physically impressive might have genetic gifts. Our starting lines var