4 ms·

but a stock is partial ownership of a real business, which has revenue and owns other assets

shadowgovt 6y ago
What that means tangibly varies from business to business. You might get a cut of the profits in the form of dividends... unless you don't. Plenty of stocks never pay dividends. A lot of companies pay more to charity than to dividends to investors. Or, you get a vote on company policy at the stockholder's meeting... But if the founders own more than half the stock, that doesn't actually matter. And that's assuming the founders haven't just sold stock with no voting privileges. If the company files for Chapter 7 bankruptcy, stock owners are entitled to company assets... And almost never see any, because they're last in line behind every other creditor. So it's unclear what, precisely, the practical weight of "partial ownership in a real business" has in general. In specific, sure; stock could be access to dividends or a meaningful voice in company policy. For a lot of stock, the only real value is "How much will someone else pay me for this piece of the action?"
- acover 6y ago
  Aren't there minority shareholder rights, which give you the right to sue if they do something against your interest?
cwkoss 6y ago
That is true for businesses with "reasonable" P/E multiples of ~5 or less. When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings. It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.
- erichocean 6y ago
  Siri, what is Amazon's P/E ratio?
  - gspr 6y ago
    Best ask Alexa.
- creddit 6y ago
  P/E of 5 is really small. Historic P/E ratios are multiples of that.
- thekyle 6y ago
  There are plenty of value ETFs for those who want stocks with low P/Es. Historically value stocks have even outperformed growth stocks. Also, the long term average P/E ratio is 15. Stocks haven't really had P/Es less than 5 since the Great Depression.
  - cwkoss 6y ago
    Thanks, I've never looked into ETFs with this thesis before. Could be an attractive investment. Found this interesting list of average S&P500 P/E over the years https://www.multpl.com/s-p-500-pe-ratio/table/by-year https://www.multpl.com/s-p-500-pe-ratio/table/by-year Average P/E is 15.79, higher than I thought it was.
- robocat 6y ago
  > “reasonable" P/E multiples of ~5 or less. So you are saying more than 10% yield should be normal? (Assuming normal payout ratio is 50% - highly variable).

What that means tangibly varies from business to business. You might get a cut of the profits in the form of dividends... unless you don't. Plenty of stocks never pay dividends. A lot of companies pay more to charity than to dividends to investors. Or, you get a vote on company policy at the stockholder's meeting... But if the founders own more than half the stock, that doesn't actually matter. And that's assuming the founders haven't just sold stock with no voting privileges. If the company files for Chapter 7 bankruptcy, stock owners are entitled to company assets... And almost never see any, because they're last in line behind every other creditor. So it's unclear what, precisely, the practical weight of "partial ownership in a real business" has in general. In specific, sure; stock could be access to dividends or a meaningful voice in company policy. For a lot of stock, the only real value is "How much will someone else pay me for this piece of the action?"

acover 6y ago
Aren't there minority shareholder rights, which give you the right to sue if they do something against your interest?

cwkoss 6y ago

That is true for businesses with "reasonable" P/E multiples of ~5 or less. When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings. It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.

erichocean 6y ago
Siri, what is Amazon's P/E ratio?
- gspr 6y ago
  Best ask Alexa.
creddit 6y ago
P/E of 5 is really small. Historic P/E ratios are multiples of that.
thekyle 6y ago
There are plenty of value ETFs for those who want stocks with low P/Es. Historically value stocks have even outperformed growth stocks. Also, the long term average P/E ratio is 15. Stocks haven't really had P/Es less than 5 since the Great Depression.
- cwkoss 6y ago
  Thanks, I've never looked into ETFs with this thesis before. Could be an attractive investment. Found this interesting list of average S&P500 P/E over the years https://www.multpl.com/s-p-500-pe-ratio/table/by-year https://www.multpl.com/s-p-500-pe-ratio/table/by-year Average P/E is 15.79, higher than I thought it was.
robocat 6y ago
> “reasonable" P/E multiples of ~5 or less. So you are saying more than 10% yield should be normal? (Assuming normal payout ratio is 50% - highly variable).