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Because for shareholders, the stock price only appreciates if the company grows. In many ways, it mirrors the issues for Hacker News entrepreneurs. To get VC c
by nemild 8y ago
Because for shareholders, the stock price only appreciates if the company grows.
In many ways, it mirrors the issues for Hacker News entrepreneurs. To get VC capital, you have to dangle promises high returns on your equity — even if a consistent cashflow business is a great outcome for an entrepreneur (these businesses are pejoratively called "lifestyle businesses").
- zip1234 8y agoWhich is why dividends exist. Mature companies may grow less, but they produce profit, which can be distributed to shareholders in the form of dividends.
- avs733 8y agoBut that would require me to own the stock for months or years rather than milliseconds
- oarabbus_ 8y agoDividends are not some magic; they are taken out of the share price. There's not really a difference between reinvested dividends vs. no dividends at all. And non-reinvested dividends are less optimal as you'll pay taxes on them, so you actually have less net worth from collecting and not reinvesting dividends vs. either reinvesting them, or investing in a company which doesn't yield a dividend. It's a fallacy that many people fall for though. See Berkshire Hathaway for the prime example.
- nradov 8y agoSome public companies choose to return cash to shareholders through share buybacks rather than dividends because it's more tax efficient.
- ataturk 8y agoI don't know who is doing your taxes, but dividends, whether reinvested or not, are taxable in taxable accounts. Might want to look into that.
- deleted 8y ago[deleted]
- avs733 8y agoI've started two nearly automated lifestyle businesses specifically in areas where this exists. They are extremely low overhead and time cost and generally low revenue. Any decent vc funded company could blow my product out of the water but they won't bother
- nicoburns 8y agoAnd this is why I oppose the current system of shareholders having control of companies.
- adambyrtek 8y agoWhat exactly do you oppose? Founders are the original shareholders, so I guess you don't oppose them having control of their own company? Since they are in control, nobody forces them to raise investment and give away shares in exchange for money. In other words, it's their decision whether to introduce new shareholders (either private or public ones).
- nicoburns 8y agoI guess I oppose the system where we give control of companies to people who put capital into the company. As opposed to the people who run the company, or rank and file employees.