Option three would be to not distribute cash through dividends or buy backs and reinvest directly in the business. In that case the net result and tax treatment is about the same as buying back shares. Trying to treat buy backs as a special case would just result in a defacto incentivization of conglomerates.
I’d rather invest in just that company, one that can continue reinvesting profits in itself at attractive returns year in and out. I can sit back and let compounding work it’s magic ( although at some point in my life I will switch from a net producer to a net consumer and opt for cash ). In cases where a company does not need all the cash it generates to continue its growth or does not have growth prospects ( not necessarily a bad thing), then I’d rather have cash to invest more productively elsewhere.
