4 ms·

It is different in principle, because when you buy a private business, you become the CEO, and you bank the revenue from the business. Neither of those are true

by _qulr 6y ago

It is different in principle, because when you buy a private business, you become the CEO, and you bank the revenue from the business. Neither of those are true when you buy stock in a publicly traded corporation. You may or may not get some dividends, at the discretion of the CEO, who is definitely not you.

ghaff 6y ago
It's more likely to be the board (which probably includes the CEO) that sets dividend policy--and they're elected by the shareholders. Now, in practice, they're effectively selected by some large shareholders and that probably doesn't include you. But that's just saying that, if you have a small ownership stake you don't have a lot of say in how a business manages its cash. It doesn't change the fact that a businesses' valuation should in principle be a function of future cash flows whether those come in the form of dividends, spinoffs, or an eventual purchase. You may think one majority shareholder (including yourself) is better and/or will optimize cash flows closer to what you desire than another. But otherwise it's still the cash flows that ultimately determine the value.
- _qulr 6y ago
  Let's talk about Tesla, which is basically the topic of the article. Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct? So the entire value of TSLA now is speculation on the future price of TSLA. The shareholders are not actually extracting revenue from the company (which is currently operating at a loss), they just hope to extract revenue from future stock buyers. In effect, the actual cash management is largely irrelevant. All that matters is the perception of future stock buyers about the even farther future cash management of the company. Whereas when you buy a private company, the actual revenue the company makes after the sale does matter crucially. Unless you're just looking to "flip" the company. If you bought TSLA low and sold now, you could make a tidy profit even though Tesla itself never made a profit during the entire time you owned it.
  - ghaff 6y ago
    >Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct? There are other outcomes that could give cash to TSLA shareholders, but fine. I'm perfectly comfortable saying that there's no rational basis to TSLA share price and that the price is propped up by speculators gambling/subscribing to the greater fool theory. (Even if some think TSLA is going to be the most valuable company in the world in 10 years or whatever and will start paying dividends, spinning off assets, etc.)

by _qulr 6y ago

ghaff 6y ago

It's more likely to be the board (which probably includes the CEO) that sets dividend policy--and they're elected by the shareholders. Now, in practice, they're effectively selected by some large shareholders and that probably doesn't include you. But that's just saying that, if you have a small ownership stake you don't have a lot of say in how a business manages its cash. It doesn't change the fact that a businesses' valuation should in principle be a function of future cash flows whether those come in the form of dividends, spinoffs, or an eventual purchase. You may think one majority shareholder (including yourself) is better and/or will optimize cash flows closer to what you desire than another. But otherwise it's still the cash flows that ultimately determine the value.

_qulr 6y ago
Let's talk about Tesla, which is basically the topic of the article. Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct? So the entire value of TSLA now is speculation on the future price of TSLA. The shareholders are not actually extracting revenue from the company (which is currently operating at a loss), they just hope to extract revenue from future stock buyers. In effect, the actual cash management is largely irrelevant. All that matters is the perception of future stock buyers about the even farther future cash management of the company. Whereas when you buy a private company, the actual revenue the company makes after the sale does matter crucially. Unless you're just looking to "flip" the company. If you bought TSLA low and sold now, you could make a tidy profit even though Tesla itself never made a profit during the entire time you owned it.
- ghaff 6y ago
  >Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct? There are other outcomes that could give cash to TSLA shareholders, but fine. I'm perfectly comfortable saying that there's no rational basis to TSLA share price and that the price is propped up by speculators gambling/subscribing to the greater fool theory. (Even if some think TSLA is going to be the most valuable company in the world in 10 years or whatever and will start paying dividends, spinning off assets, etc.)