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What would be an investment vehicle with expected returns above inflation whose value is not dependent on “what someone may pay for it“? These companies are ma

What would be an investment vehicle with expected returns above inflation whose value is not dependent on “what someone may pay for it“? These companies are making profits and by buying stocks you are entitled in their present and future stream of dividends. It’s not different than investing in your friend’s business restaurant.

falcolas 7y ago
> by buying stocks you are entitled in their present and future stream of dividends If the value of stock was driven by the potential dividends, I would agree. But the actual dividend payouts are meaningless in the transaction; it's only worth what the next owner of that piece of stock will buy it for. For example, stock in a business that has no revenue (or doesn't pay dividends) and that provides non controlling votes, should be worthless. But it's not. Instead, you have prices per share set so high that even if the company was wildly profitable and paid out dividends it would take decades or centuries to make that money back.
- deanmoriarty 7y ago
  it should most definitely not be worthless. A company not paying dividends is akin to you investing in your friend’s restaurant, and have your friend tell you that by investing you are entitled to a piece of the pie, but the business plan he has in mind is to invest all the profits (if any) for the next 10 years to grow the business and expand to new locations, and just after 10 years start sharing profits or selling it to someone else. In such scenario, is that piece of the pie worthless? I say most definitely not, because, net of risk, the expectation is that your “slice” will end up being more valuable than what you invested in. I ask my question again: what is another investment that doesn’t operate by this basic logic? What is a business where its value is purely and solely based on a hardcoded multiple of current profits, and such multiple cannot go up and down based on how the buyers feel the future growth trajectory will be for such business?
  - falcolas 7y ago
    Frankly, if I'm investing in a friend's company, I would have some control over the terms of the investment (time, interest, order of payback, etc). I might even have some say in the business model. So, I would be an actual investor. In contrast, if I purchase a share of stock in a company, I have no control over that investment. I'm just giving money to somebody, who gave money to somebody else, who purchased stock at an IPO based on other IPO investor's valuation of the company. The actual value of any share of stock is based solely on the mob behavior of the other stock holders based off speculation, rumors, and psychological manipulation. Throw in a few algorithms trained by the human mob mentality as well. The value of the stock is not controlled by the business, not its income, not its revenue, not its business model.
    - deanmoriarty 7y ago
      > The value of the stock is not controlled by the business, not its income, not its revenue, not its business model. It absolutely is (modulo risk and short term volatility)! But it’s fine, I’ll agree to disagree at this point. I just hope that you get to invest your savings in something with expected returns as good as the stock market, otherwise I think your opinions are statistically going to cost you A LOT of money.
- tempsy 7y ago
  Do you hold stock investments? I just sometimes wonder if people who overthink what the stock market is or isn’t has missed out on the 10 year market and now trying to justify their decision.
  - falcolas 7y ago
    Outside my 401k, no. I didn't have enough money to put into the stock market. And frankly, even now I wouldn't dare; I don't think I'll ever grok how investors work well enough to take the risk. Especially since the transaction fees set an artificial floor on how much I need to get out of any given buy/sell transaction.
    - deanmoriarty 7y ago
      > Especially since the transaction fees set an artificial floor on how much I need to get out of any given buy/sell transaction. The vast majority of US brokerages nowadays allow you to trade index funds ETFs completely for free (Vanguard, Fidelity, Schwab, ...), and in some common cases also individual stocks (RH, ...), so this point shouldn’t be a factor. I personally have a 7 figure portfolio invested in diversified index funds, and couldn’t be happier and can very much sleep at night (including in 2009 and even last year after US equities dropped 19% in a few days). Just last year my returns have been astronomical, much higher than what I have saved from my paychecks, and I rebalanced some of that into bonds, like I usually do.
      - falcolas 7y ago
        I looked up Schwab's costs, and boy are there are a lot of asterixes there, and a lot of "It could be zero, it could be 1%, it could be $50... it depends". > I personally have a 7 figure portfolio And how much have you put into that? Six figures? Seven figures? It was probably not 4 figures.
        deanmoriarty 7y ago
        > I looked up Schwab's costs, and boy are there are a lot of asterixes there I have been a Vanguard customer for 15 years, always invested in index funds, and never ever paid even just $0.01 in transaction fees. And the other brokerages are virtually just the same, there is a lot of healthy competition so everyone offers their index funds with free trading. You really have to go out of your way to pay fees (e.g. buy derivatives or some weird mutual fund with fees). > And how much have you put into that? I keep track of it in several spreadsheets, and as of today 40% of my portfolio comes from direct contributions, and 60% is market returns. The beauty of it is that the longer you keep your portfolio running, the wider this ratio gets (due to compounding effects) while keeping the same risk tolerance. > It was probably not 4 figures. No reasonable investment would allow you to go from 4 figures to 7 figures in a decade — maybe in 30 years. I am not a speculative investor, I don’t buy bitcoin nor Tesla nor single stocks. I invest in world-diversified index funds since my risk appetite is heavily skewed towards capital preservation rather than 100x returns.

falcolas 7y ago

> by buying stocks you are entitled in their present and future stream of dividends If the value of stock was driven by the potential dividends, I would agree. But the actual dividend payouts are meaningless in the transaction; it's only worth what the next owner of that piece of stock will buy it for. For example, stock in a business that has no revenue (or doesn't pay dividends) and that provides non controlling votes, should be worthless. But it's not. Instead, you have prices per share set so high that even if the company was wildly profitable and paid out dividends it would take decades or centuries to make that money back.

deanmoriarty 7y ago
it should most definitely not be worthless. A company not paying dividends is akin to you investing in your friend’s restaurant, and have your friend tell you that by investing you are entitled to a piece of the pie, but the business plan he has in mind is to invest all the profits (if any) for the next 10 years to grow the business and expand to new locations, and just after 10 years start sharing profits or selling it to someone else. In such scenario, is that piece of the pie worthless? I say most definitely not, because, net of risk, the expectation is that your “slice” will end up being more valuable than what you invested in. I ask my question again: what is another investment that doesn’t operate by this basic logic? What is a business where its value is purely and solely based on a hardcoded multiple of current profits, and such multiple cannot go up and down based on how the buyers feel the future growth trajectory will be for such business?
- falcolas 7y ago
  Frankly, if I'm investing in a friend's company, I would have some control over the terms of the investment (time, interest, order of payback, etc). I might even have some say in the business model. So, I would be an actual investor. In contrast, if I purchase a share of stock in a company, I have no control over that investment. I'm just giving money to somebody, who gave money to somebody else, who purchased stock at an IPO based on other IPO investor's valuation of the company. The actual value of any share of stock is based solely on the mob behavior of the other stock holders based off speculation, rumors, and psychological manipulation. Throw in a few algorithms trained by the human mob mentality as well. The value of the stock is not controlled by the business, not its income, not its revenue, not its business model.
  - deanmoriarty 7y ago
    > The value of the stock is not controlled by the business, not its income, not its revenue, not its business model. It absolutely is (modulo risk and short term volatility)! But it’s fine, I’ll agree to disagree at this point. I just hope that you get to invest your savings in something with expected returns as good as the stock market, otherwise I think your opinions are statistically going to cost you A LOT of money.
tempsy 7y ago
Do you hold stock investments? I just sometimes wonder if people who overthink what the stock market is or isn’t has missed out on the 10 year market and now trying to justify their decision.
- falcolas 7y ago
  Outside my 401k, no. I didn't have enough money to put into the stock market. And frankly, even now I wouldn't dare; I don't think I'll ever grok how investors work well enough to take the risk. Especially since the transaction fees set an artificial floor on how much I need to get out of any given buy/sell transaction.
  - deanmoriarty 7y ago
    > Especially since the transaction fees set an artificial floor on how much I need to get out of any given buy/sell transaction. The vast majority of US brokerages nowadays allow you to trade index funds ETFs completely for free (Vanguard, Fidelity, Schwab, ...), and in some common cases also individual stocks (RH, ...), so this point shouldn’t be a factor. I personally have a 7 figure portfolio invested in diversified index funds, and couldn’t be happier and can very much sleep at night (including in 2009 and even last year after US equities dropped 19% in a few days). Just last year my returns have been astronomical, much higher than what I have saved from my paychecks, and I rebalanced some of that into bonds, like I usually do.
    - falcolas 7y ago
      I looked up Schwab's costs, and boy are there are a lot of asterixes there, and a lot of "It could be zero, it could be 1%, it could be $50... it depends". > I personally have a 7 figure portfolio And how much have you put into that? Six figures? Seven figures? It was probably not 4 figures.
      - deanmoriarty 7y ago
        > I looked up Schwab's costs, and boy are there are a lot of asterixes there I have been a Vanguard customer for 15 years, always invested in index funds, and never ever paid even just $0.01 in transaction fees. And the other brokerages are virtually just the same, there is a lot of healthy competition so everyone offers their index funds with free trading. You really have to go out of your way to pay fees (e.g. buy derivatives or some weird mutual fund with fees). > And how much have you put into that? I keep track of it in several spreadsheets, and as of today 40% of my portfolio comes from direct contributions, and 60% is market returns. The beauty of it is that the longer you keep your portfolio running, the wider this ratio gets (due to compounding effects) while keeping the same risk tolerance. > It was probably not 4 figures. No reasonable investment would allow you to go from 4 figures to 7 figures in a decade — maybe in 30 years. I am not a speculative investor, I don’t buy bitcoin nor Tesla nor single stocks. I invest in world-diversified index funds since my risk appetite is heavily skewed towards capital preservation rather than 100x returns.