4 ms·

> a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock pric

by tayo42 7y ago

> a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception ignorant question, if true, how is this not the worlds biggest ponzi scheme? Are we just betting on the possibility of dividends in the future? It just seems illogical. The fraction of meaningless ownership as a shareholder can't be worth that much to most people. Then to take this to the extreme why do we bother with stocks, why don't humans just collectively put money into a a giant pot where we can withdraw proportionally at any time. Isn't that what we are doing with stocks?

cft 7y ago
It is and it will get corrected. The question is how. The CPI could inflate to match the asset bubble, or the bubble could pop. The first is looking more and more plausible. When either happens, it will be ugly, but if the first scenario plays out, "cash is trash" as Ray Dalio says.
californical 7y ago
I am right with you, I've never understood what the actual purpose to owning shares is other than "their price goes up when the company is expected to do well" -- but what do you get for that price being higher? Without dividends the whole idea of stocks makes no sense to me. With dividends, I would think "I'll buy this stock for $100 with the expectation that I'll get a $10 dividend next year, a $12 dividend the year after that, etc etc, and eventually make my money back!" In the case you buy a bunch of stocks and just hold onto them, they generate value by the company doing well. I could buy shares of a bunch of companies and wait 30 years, and if most of those companies are still doing well, I'll have made a profit from dividends, and I can then sell those to some wide-eyed young person who is hoping the company will continue to do well so they can get their payments for the next 30+ years. If the company instead does well for 20 years and then abruptly goes out of business, I still would've gotten lots of payouts from them, but now I can't sell those shares to someone who hopes for future payouts anymore. But if there are no dividends, none of this makes any sense -- I'm buying the shares, making no money for the 30 years that I sit on them, then selling them to some wide-eyed younger person for a higher price who expects to also make no money for 30 years, but to be able to sell the shares to some new younger person? There's no endgame with a payout here, but there is an end where the company goes out of business. So what value was the share providing the owner over those 30 years??
- kgwgk 7y ago
  You are not forced to hold onto non-dividend paying stocks, you can sell them gradually to create "dividends" for yourself. As a first order approximation, buying a $100 stock that gives you a $5 dividend but stays at $100 is not different from buying a stock that doesn't distribute a dividend but appreciates 5% every year.
  - californical 7y ago
    Thanks for the response! I guess my issue is that there's no actual value in owning non-dividend shares for any amount of time. So I can sell the stock to someone else, but what are they paying me for? The opportunity for the value to increase more? Why is someone interested in paying me more than I paid? I feel like there's never any real money that's made back by owning those shares. What's the goal? Removed from the stock market, if I privately invest in a company for $1m for 10% of the company, it's because I'm hoping that someone else will see that the company has value and purchase it, giving me 10% of that future purchase price. The company sells a product of some sort, and I have a 10% vote in what they do with that money, which I'm hoping is to sell to a larger company. Is the goal the same on all of these non-dividend paying companies -- to be bought by a bigger company? Because otherwise there's no value in the shares except speculation itself, which seems pointless to me
    - kgwgk 7y ago
      Even non-dividend-distributing companies can give real cash to shareholders in exchange for those paper share certificates by buying back shares. But it's true that for some companies it's quite difficult to justify valuations.
    - pgwhalen 7y ago
      Stock gives you a legal claim to a portion of the assets of a company, which as you point out, manifests itself quite clearly during a liquidation event like a dividend payment or an acquisition by some other entity. But tt shouldn't bother you that plans for such a liquidation event might not be clear when you buy the stock. What matters to you (and future investors that might buy your shares from you) is that if such an event happens, you have to be compensated as a result. That's why your shares retain value. To take a more specific example, Google has ~$100B of cash on hand, and it does not pay any dividends. Let's just assume that Google is nothing more than a box containing $100B, and you own a portion of that box amounting to $1000. Even though you can't reach your hand in and take out that $1000, it's yours. In the event it gets released from the box, you're the only one that can get at it because of your ownership. And because everyone else realizes that, there's a pretty clear value to that ownership that they would rationally pay you for. Of course, Google is much more than just a box of money, it is a box of many things, some very intangible (but still valuable). This extra value makes it worth far more than $100B. But it's still a box, and if the value gets released from the box, you're the one who gets it. So who wouldn't pay (at the correct price) for that?

by tayo42 7y ago

cft 7y ago

It is and it will get corrected. The question is how. The CPI could inflate to match the asset bubble, or the bubble could pop. The first is looking more and more plausible. When either happens, it will be ugly, but if the first scenario plays out, "cash is trash" as Ray Dalio says.

californical 7y ago

I am right with you, I've never understood what the actual purpose to owning shares is other than "their price goes up when the company is expected to do well" -- but what do you get for that price being higher? Without dividends the whole idea of stocks makes no sense to me. With dividends, I would think "I'll buy this stock for $100 with the expectation that I'll get a $10 dividend next year, a $12 dividend the year after that, etc etc, and eventually make my money back!" In the case you buy a bunch of stocks and just hold onto them, they generate value by the company doing well. I could buy shares of a bunch of companies and wait 30 years, and if most of those companies are still doing well, I'll have made a profit from dividends, and I can then sell those to some wide-eyed young person who is hoping the company will continue to do well so they can get their payments for the next 30+ years. If the company instead does well for 20 years and then abruptly goes out of business, I still would've gotten lots of payouts from them, but now I can't sell those shares to someone who hopes for future payouts anymore. But if there are no dividends, none of this makes any sense -- I'm buying the shares, making no money for the 30 years that I sit on them, then selling them to some wide-eyed younger person for a higher price who expects to also make no money for 30 years, but to be able to sell the shares to some new younger person? There's no endgame with a payout here, but there is an end where the company goes out of business. So what value was the share providing the owner over those 30 years??

kgwgk 7y ago
You are not forced to hold onto non-dividend paying stocks, you can sell them gradually to create "dividends" for yourself. As a first order approximation, buying a $100 stock that gives you a $5 dividend but stays at $100 is not different from buying a stock that doesn't distribute a dividend but appreciates 5% every year.
- californical 7y ago
  Thanks for the response! I guess my issue is that there's no actual value in owning non-dividend shares for any amount of time. So I can sell the stock to someone else, but what are they paying me for? The opportunity for the value to increase more? Why is someone interested in paying me more than I paid? I feel like there's never any real money that's made back by owning those shares. What's the goal? Removed from the stock market, if I privately invest in a company for $1m for 10% of the company, it's because I'm hoping that someone else will see that the company has value and purchase it, giving me 10% of that future purchase price. The company sells a product of some sort, and I have a 10% vote in what they do with that money, which I'm hoping is to sell to a larger company. Is the goal the same on all of these non-dividend paying companies -- to be bought by a bigger company? Because otherwise there's no value in the shares except speculation itself, which seems pointless to me
  - kgwgk 7y ago
    Even non-dividend-distributing companies can give real cash to shareholders in exchange for those paper share certificates by buying back shares. But it's true that for some companies it's quite difficult to justify valuations.
  - pgwhalen 7y ago
    Stock gives you a legal claim to a portion of the assets of a company, which as you point out, manifests itself quite clearly during a liquidation event like a dividend payment or an acquisition by some other entity. But tt shouldn't bother you that plans for such a liquidation event might not be clear when you buy the stock. What matters to you (and future investors that might buy your shares from you) is that if such an event happens, you have to be compensated as a result. That's why your shares retain value. To take a more specific example, Google has ~$100B of cash on hand, and it does not pay any dividends. Let's just assume that Google is nothing more than a box containing $100B, and you own a portion of that box amounting to $1000. Even though you can't reach your hand in and take out that $1000, it's yours. In the event it gets released from the box, you're the only one that can get at it because of your ownership. And because everyone else realizes that, there's a pretty clear value to that ownership that they would rationally pay you for. Of course, Google is much more than just a box of money, it is a box of many things, some very intangible (but still valuable). This extra value makes it worth far more than $100B. But it's still a box, and if the value gets released from the box, you're the one who gets it. So who wouldn't pay (at the correct price) for that?