I really thought you got my point when you said this (although you keep bringing up active investing even though stock buybacks destroy shareholder value for index investors too).
I think I only brought up active investing once in my last two posts, and as I described there, that's because "value destruction" is difficult to discern in the passive world. It either doesn't happen, or it happens everywhere. When you reinvest an index's dividends in that index, the money is reinvested proportionally to the components of the index, even though it was not generated proportionally. If my dividends are generated largely by "undervalued" companies, and then reinvested in "overvalued" companies, I'm destroying value. But who cares? I'm matching the index, which is my goal. If the index's largest component goes from correctly-valued to overvalued, money must shift from correctly-valued components to that overvalued one. If that component again becomes correctly-valued, value is destroyed. But who cares? I'm matching the index, which is my goal.
In short, "intrinsic value" is a concept that the passive index investor blissfully ignores, and since intrinsic value is the only way that value destruction can be detected, the passive investor will never see it. The active investor presumably has an actual intrinsic value in mind, and can thus take action around a buyback. There is no action for a passive investor to take. How is he to know if a share price going from $20 to $10 after a buyback is the result of an overvalued stock returning to its correct value (thus making the buyback a value-destroyer), or going from undervalued to even-more-undervalued (thus making the buyback a value-creator that hasn't paid off yet)? Sure, the passive investor would enjoy it if managers only did buybacks that were value-creators for ongoing shareholders, since that would presumably result in a higher total return on the index, but he'd enjoy it if managers got their workers to be more productive too.
But then you said this:
"Mostly meaningless"? Just because there are investors and companies for whom a buyback may be less-optimal than a dividend, that hardly makes buybacks meaningless. They're still returns of capital to the investor pool, in exactly the same magnitude as a dividend would be.
My entire point is that stock buybacks can actually destroy shareholder value. Most often they destroy shareholder value relative to paying a dividend, but the frequently result in not just relative but absolute losses to investors. In this case, stock buybacks are worse than doing nothing – they are management actively losing money for investors.
Sorry, when I said "investor pool", I meant that to refer to both the former investors and the ongoing investors. As my
Legg Mason bro illustrates on p.6, value is conserved when you consider the entire system. So I was just disputing the notion that the transfer of billions of dollars from corporations to investors could in any way be considered "meaningless".