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Not necessarily, and not in the long term. You can buy stocks with no expectation they will increase in value (or even maintain value) if the dividend yield is

Not necessarily, and not in the long term. You can buy stocks with no expectation they will increase in value (or even maintain value) if the dividend yield is high enough. And stocks have value because of this - the assumption in any stock, even one currently without a dividend, is that eventually it will pay out some form of a dividend to its holders. You may buy a stock hoping it will will rise in value, but that rise is predicated on the eventual delivery of cash via dividends or some other mechanism of distribution. Contrast that with say, Gold, where in fact it costs money to hold and there's no expectation it will ever generate any kind of dividend.

TheSpiceIsLife 9y ago
How is the long term not gambling? No one knows what going to happen tomorrow let alone in ten plus year. My bet is: it all comes down to risk tolerance. In the long term some forms of investments have shown, historically, to be consistently less risky, or more risky, than others.
- tomkarlo 9y ago
  Gambling and investing both involve risk, but they're not the same thing, and there's important differences. In particular, in most gambling, the sum of returns to participants is less than the amount wagered by all parties, whereas in equity investment it's generally / historically the opposite. Additionally, whereas gambling is generally fairly time-bounded, investing isn't, and in fact often rewards longer holds via dividend and coupon yields in addition to the potential difference between purchase and sale. More to point: most studies show that you do best in investing simply by having money invested for long periods, and being diversified to mitigate secular risk. That wouldn't work in gambling.
  - TheSpiceIsLife 9y ago
    You've made some great points, thank you.
jeremyjh 9y ago
There are plenty of stocks that no one ever expects any distribution or dividend from, but they know it represents a claim on real value (assets and incomes) in the business, and that there is a market where they can resell it for more money if the value of the underlying assets increase. All the incomes may go back into the business but that doesn't mean they don't increase real value.
- tomkarlo 9y ago
  At the end of the day, on even these stocks, the value is still predicated upon either those assets being sold and the value being distributed, or those incomes turning into a dividend or liquidation value. A business that reinvests its income into its own business does to because it believes that the return on that investment in the future exceeds the rate of return demanded by its equity investors. Otherwise, doing that would reduce the value of the stock. It's impossible to assess, of course, but the true value of any equity is the net present value of the future cash it will generate for its holders. Full stop. Equity holders don't care about value in the business that won't translate into dollars coming out of the stock at some point in time.
deathanatos 9y ago
> if the dividend yield is high enough Are you not then still betting that the stock continues to offer dividends / offers them at the same rate?
- tomkarlo 9y ago
  If you choose a broad enough definition of betting, everything is gambling. But to be more specific, the post I replied to stated that everyone who invests in stocks is betting that their price will go up, which isn't true. There's good stock investments where you know the price of the stock is going to go down to zero, because you have high enough certainty that it will pay out dividends of sufficient value to justify the purchase price. (This would be typical of a "late stage" or "liquidation stage" enterprise.)

TheSpiceIsLife 9y ago

How is the long term not gambling? No one knows what going to happen tomorrow let alone in ten plus year. My bet is: it all comes down to risk tolerance. In the long term some forms of investments have shown, historically, to be consistently less risky, or more risky, than others.

tomkarlo 9y ago
Gambling and investing both involve risk, but they're not the same thing, and there's important differences. In particular, in most gambling, the sum of returns to participants is less than the amount wagered by all parties, whereas in equity investment it's generally / historically the opposite. Additionally, whereas gambling is generally fairly time-bounded, investing isn't, and in fact often rewards longer holds via dividend and coupon yields in addition to the potential difference between purchase and sale. More to point: most studies show that you do best in investing simply by having money invested for long periods, and being diversified to mitigate secular risk. That wouldn't work in gambling.
- TheSpiceIsLife 9y ago
  You've made some great points, thank you.

jeremyjh 9y ago

There are plenty of stocks that no one ever expects any distribution or dividend from, but they know it represents a claim on real value (assets and incomes) in the business, and that there is a market where they can resell it for more money if the value of the underlying assets increase. All the incomes may go back into the business but that doesn't mean they don't increase real value.

tomkarlo 9y ago
At the end of the day, on even these stocks, the value is still predicated upon either those assets being sold and the value being distributed, or those incomes turning into a dividend or liquidation value. A business that reinvests its income into its own business does to because it believes that the return on that investment in the future exceeds the rate of return demanded by its equity investors. Otherwise, doing that would reduce the value of the stock. It's impossible to assess, of course, but the true value of any equity is the net present value of the future cash it will generate for its holders. Full stop. Equity holders don't care about value in the business that won't translate into dollars coming out of the stock at some point in time.

deathanatos 9y ago

> if the dividend yield is high enough Are you not then still betting that the stock continues to offer dividends / offers them at the same rate?

tomkarlo 9y ago
If you choose a broad enough definition of betting, everything is gambling. But to be more specific, the post I replied to stated that everyone who invests in stocks is betting that their price will go up, which isn't true. There's good stock investments where you know the price of the stock is going to go down to zero, because you have high enough certainty that it will pay out dividends of sufficient value to justify the purchase price. (This would be typical of a "late stage" or "liquidation stage" enterprise.)