3 ms·

> the value of a stock is supposed to be the amount of earnings you are expected to receive from it over its lifetime Who supposes that? I don't and I'm ready

> the value of a stock is supposed to be the amount of earnings you are expected to receive from it over its lifetime Who supposes that? I don't and I'm ready to pay a different price that you'd do. If there isn't a good reason for that, you might be able to take advantage from my position. Now, there are many reasons why I wouldn't price a stock as the sum of its (future) earnings. For instance, a company can be acquired by another and makes a very different business in the combined configuration. Moreover, the acquirer could use the merger to prevent a competitor to enter a very profitable market. Why would you care about the performance of the acquired company if it remained independent? There's no way to estimate the future earnings of a company without knowing all the possible strategic configurations. Growth stocks are bought for potential capital gains, not dividends. (Market) power is much more important than earnings you can forecast. I'm a Tesla shareholder (the stock makes over 90% of my financial assets) and I don't expect a buck of dividend from this company. I intend to keep the stock for ~20 years, which I bought at $25 avg.

mcguire 10y ago
The alternative to valuing a stock as the current value of its net future dividends (not future revenue; as a stockholder, you have no claim on revenue) is the greater fool theory. Greater fool theory has some problems. For one, it's not economically rational.
Taek 10y ago
All companies eventually die. Sometimes this can take hundreds of years, but all companies do eventually die. At that point, the stock is worth zero. So if all stock is eventually worth zero, why pay for any of it today? Well, you may want voting rights. But voting rights don't mean much unless you hold a lot of stock, and a lot of stock is non-voting anyway. That leaves dividends and exits. An exit depends on someone having a value for the company, and can almost be looked at as a 'final dividend'. So I would essentially boil the value of most stock down to purely dividends. If you buy it for any other reason, you are hoping that some other person will be willing to buy it from you later. Which means that other person needs a reason (voting power, dividends, or some other business move with external benefits). But my appraisal is that many stocks exist today that have value simply because people think that other people will want the stock. It's inefficient, and at the moment of exit (death also counts as exit here) someone is left holding a bunch of stock that's worth less than what they bought it for.

mcguire 10y ago

The alternative to valuing a stock as the current value of its net future dividends (not future revenue; as a stockholder, you have no claim on revenue) is the greater fool theory. Greater fool theory has some problems. For one, it's not economically rational.

Taek 10y ago

All companies eventually die. Sometimes this can take hundreds of years, but all companies do eventually die. At that point, the stock is worth zero. So if all stock is eventually worth zero, why pay for any of it today? Well, you may want voting rights. But voting rights don't mean much unless you hold a lot of stock, and a lot of stock is non-voting anyway. That leaves dividends and exits. An exit depends on someone having a value for the company, and can almost be looked at as a 'final dividend'. So I would essentially boil the value of most stock down to purely dividends. If you buy it for any other reason, you are hoping that some other person will be willing to buy it from you later. Which means that other person needs a reason (voting power, dividends, or some other business move with external benefits). But my appraisal is that many stocks exist today that have value simply because people think that other people will want the stock. It's inefficient, and at the moment of exit (death also counts as exit here) someone is left holding a bunch of stock that's worth less than what they bought it for.