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> Fundamentally, owning shares in a company just grants you rights to a fraction of all future company earnings. No it doesn't! Owning shares in a company does

> Fundamentally, owning shares in a company just grants you rights to a fraction of all future company earnings. No it doesn't! Owning shares in a company doesn't give you rights to a fraction of all the future earnings of the company. What kinds of shares have you been buying? All owning shares in a company gives you is the ability to sell those shares to someone else. There's some kind of nominal "voting rights" and in relatively rare cases there might be some amount of dividends you can get from owning the shares, but the value of the shares is very rarely derived from the voting rights conferred on the owner or the expected dividends to be received.

setr 5y ago
This I've never understood -- if a stock is detached from company earnings, then what drives the value of a stock, beyond the meaningless "someone else is willing to pay for it" -- why are they willing? It's not at all clear to me why my apple stock should have greater value, if apple does better as a company (or is predicted to do better).
- JohnPrine 5y ago
  Stocks represent ownership in a company. Apple has $200 billion in cash currently. Owning a share of Apple quite literally means that you own a share of that $200 billion. It's useful to think about this in terms of a company's tangible assets because it provides a lower bound on the price of a share (assuming the company has no debt). If the Apple share price ever dropped so low that the sum of all the shares was worth less than $200 billion, a savvy investor could just snap up all the shares and effectively purchase 200 billion dollars at a discount. Any premium on the price of a share beyond the company's assets comes from either the dividends that you expect to be paid out as a result of owning that stock, or from an expectation that the company's assets will grow in the future (so that share will entitle you to part ownership of $300 billion instead of $200 billion, for example).
  - setr 5y ago
    The part I don't understand is how do I translate "ownership in apple" to USD. Obviously I can trade it to someone else, but that's just moving the problem -- eventually someone has to be in the position to actually extract real value out of the stock, in a fashion that correlates to company success. AFAIK dividends aren't an inherit property to a stock (it's a "class" of stock) so that's not fully satisfactory, and it's not guaranteed either (a board "chooses" to give out dividend, for reasons/amounts unclear to me). It's also very unclear how I would take my part ownership of $300B, and translate it to $20 in my pocket, except by passing the buck to some other investor. The only scenario I can think of is the risk of sufficient ownership to take over the company, at which point you could pay yourself wage or force buybacks, but then stocks are entirely worthless until someone holds less than 51% -- and even then, zuckerberg famously screws that equation too. So under this description, there's still no way to actually translate my FB stock into USD, without FB doing a buyback (which would be pointless, because there's no risk of control-loss anyways), until zuckerberg dies.
    - chii 5y ago
      > eventually someone has to be in the position to actually extract real value out of the stock what is "real" value? If it's cash, then you can either sell the stock itself, to somebody else, which can repeat infinitely as long as the company is a going concern. There's no end - because there's no end to the profits of a company that continue to produce profits. Of course, it might end one day, but it would be the last bag holder who purchased a dying company (imagine if apple became what IBM is today). But that's got nothing to do with the structure and ownership of stocks, but that the company's performance declined.
      - setr 5y ago
        This skips the problem, again. You can trade a sheep as much as you want, between any numbers of investors. But there is some basic value to sheep, because eventually someone is able to convert the sheep into money, with effort time and process (butcher, shear, etc). Extracted Value dependent on market of derivative products, and efficiency of extraction. A sheep can be used to produce $20 USD, and traders who never see the sheep are simply trading on speculation (how much value the sheep can be extracted for today, how much it might be extracted for tomorrow, how badly will extractors want it, etc). The traders bounce the sheep around willy-nilly but eventually the sheep has a simple answer to “why does anyone value this object in the first place?” — because it can be used to extract more wealth than it costs. My poop can be speculatively traded infinitely as long it continues to exist. Anything can — it doesn’t matter the subject. But at some point, someone must actually want my poop for non-speculative trading it to have a value to speculate on. The question that keeps being bypassed is: who is actually in the position to do something productive with an FB stock? Note: I’m assuming that stocks don’t draw their value from the ether — no one wants stocks as art, at least no more than USD
- wilkommen 5y ago
  Right, you've got it. There is no reason why your apple stock should have a greater value if apple does better as a company, other than the fact that as a collective we've all chosen to believe that your share "represents" a "slice" of the company, and we've also all chosen to believe that other people will value your "slice" more when the company does "better". There is no material meaning behind saying that your apple stock is a "slice of the company." In no material way is that true in a practical sense. You are not entitled to a percentage of profits, and you do not have any say in the way the company operates. As for my other point, we've all chosen to believe that other people will buy our stock for more when the company "does better". But "doing better" doesn't necessarily mean "is more profitable." Just look at WeWork for a counterexample. We're all just trading meaningless tickets with ticker symbols on them believing that they're valuable because someone else will buy them for more later. And because we all believe this, it's actually true. It's like a collective fever dream that never ends. Stocks are no different from Air Jordans or Dutch tulips - the value of individual stocks changes according to the stories we tell about them, which can be influenced by the company becoming more profitable, making an acquisition, laying people off, getting a new CEO, or any number of things. The value has so much more to do with the stories we tell about the stocks than anything else - because the stories determine what someone else is willing to pay for them. It's not about math, it's about psychology and group psychology. I don't say this as like a really angry person shouting as a sky hoping it'll all stop. It just goes to show how as a group, we can make our expectations real by all expecting the same thing.
- tablespoon 5y ago
  > This I've never understood -- if a stock is detached from company earnings, then what drives the value of a stock, beyond the meaningless "someone else is willing to pay for it" -- why are they willing? It's not at all clear to me why my apple stock should have greater value, if apple does better as a company (or is predicted to do better). It seems like it's a similar collective fiction to the one that gives money its value, but a fiction that provides far less social utility than money. Random thought: owning stocks gives you two things: voting rights and dividends. Take the dividends away, and you're left with voting rights. Those are typically pretty much worthless unless you own a billionaire's amount of shares (and sometimes not even then, if some other billionaire has super-voting shares). The collective fiction that small shareholdings have value without dividends mainly serves to create buy-in for a system that creates greater fools for those people.
  - wilkommen 5y ago
    Yes you've nailed it! Said it even better than me. Stocks are a collective fiction just like money. Except stupider, and only beneficial to a relatively small number of people. And to your second point, it's true - even billionaires don't profit directly from owning stock in public companies. They profit from that stock by selling it to other billionaires or institutions. Billionaires make money from owning stocks in public companies in more or less the same way as retail traders. Billionaires who own private companies though, that's a whole other thing. If you own a private company in part or in whole, it is possible to just take the company's profits and pay them directly to yourself. But owning and selling stocks is so profitable that I think for the most part billionaires don't bother with private companies - that's why they always want companies they've invested in to IPO. That's when they cash out. Anyway thanks for posting!
  - mbg721 5y ago
    Derivatives add another layer to the collective fiction. Even if they're useful for hedging, it still seems weird to me that you can use options to construct something mathematically equivalent to a share of stock without ever buying the actual stock.
joelwilliamson 5y ago
In 2019, 84% of the S&P 500, 69% of the S&P MidCap 400 and 53% of the S&P SmallCap 600 paid dividends. I would not characterize dividends as "relatively rare", and I'm curious why you think they are. https://www.streetinsider.com/Dividends/S%26P+500+Companies+Paid+Nearly+Half+a+Trillion+Dollars+in+Dividends+in+2019%2C+a+New+Record/16308696.html https://www.streetinsider.com/Dividends/S%26P+500+Companies+...
- wilkommen 5y ago
  My point isn't really how many stocks offer dividends, but more that the price of the stock isn't really connected to the size dividend at all. Companies can and do change the amount of the dividend without your approval, and many stocks don't offer dividends at all, and no one sees a stock not offering a dividend as a demerit on its desirability or value. Except for people who buy the companies on Dividend Kings list, no one is evaluating the value of stocks purely on the expected future dividend returns. For the most part, the dividend is sort of a "bonus" and the real return you hope to get from the stock is in the form of appreciation.
fairity 5y ago
This is so off-base that I didn't even feel like responding at the time it was written. Anyone who believes that owning shares in a company does NOT give you partial rights to future profit distributions needs to go educate themselves on how the stock market works.

setr 5y ago

This I've never understood -- if a stock is detached from company earnings, then what drives the value of a stock, beyond the meaningless "someone else is willing to pay for it" -- why are they willing? It's not at all clear to me why my apple stock should have greater value, if apple does better as a company (or is predicted to do better).

JohnPrine 5y ago
Stocks represent ownership in a company. Apple has $200 billion in cash currently. Owning a share of Apple quite literally means that you own a share of that $200 billion. It's useful to think about this in terms of a company's tangible assets because it provides a lower bound on the price of a share (assuming the company has no debt). If the Apple share price ever dropped so low that the sum of all the shares was worth less than $200 billion, a savvy investor could just snap up all the shares and effectively purchase 200 billion dollars at a discount. Any premium on the price of a share beyond the company's assets comes from either the dividends that you expect to be paid out as a result of owning that stock, or from an expectation that the company's assets will grow in the future (so that share will entitle you to part ownership of $300 billion instead of $200 billion, for example).
- setr 5y ago
  The part I don't understand is how do I translate "ownership in apple" to USD. Obviously I can trade it to someone else, but that's just moving the problem -- eventually someone has to be in the position to actually extract real value out of the stock, in a fashion that correlates to company success. AFAIK dividends aren't an inherit property to a stock (it's a "class" of stock) so that's not fully satisfactory, and it's not guaranteed either (a board "chooses" to give out dividend, for reasons/amounts unclear to me). It's also very unclear how I would take my part ownership of $300B, and translate it to $20 in my pocket, except by passing the buck to some other investor. The only scenario I can think of is the risk of sufficient ownership to take over the company, at which point you could pay yourself wage or force buybacks, but then stocks are entirely worthless until someone holds less than 51% -- and even then, zuckerberg famously screws that equation too. So under this description, there's still no way to actually translate my FB stock into USD, without FB doing a buyback (which would be pointless, because there's no risk of control-loss anyways), until zuckerberg dies.
  - chii 5y ago
    > eventually someone has to be in the position to actually extract real value out of the stock what is "real" value? If it's cash, then you can either sell the stock itself, to somebody else, which can repeat infinitely as long as the company is a going concern. There's no end - because there's no end to the profits of a company that continue to produce profits. Of course, it might end one day, but it would be the last bag holder who purchased a dying company (imagine if apple became what IBM is today). But that's got nothing to do with the structure and ownership of stocks, but that the company's performance declined.
    - setr 5y ago
      This skips the problem, again. You can trade a sheep as much as you want, between any numbers of investors. But there is some basic value to sheep, because eventually someone is able to convert the sheep into money, with effort time and process (butcher, shear, etc). Extracted Value dependent on market of derivative products, and efficiency of extraction. A sheep can be used to produce $20 USD, and traders who never see the sheep are simply trading on speculation (how much value the sheep can be extracted for today, how much it might be extracted for tomorrow, how badly will extractors want it, etc). The traders bounce the sheep around willy-nilly but eventually the sheep has a simple answer to “why does anyone value this object in the first place?” — because it can be used to extract more wealth than it costs. My poop can be speculatively traded infinitely as long it continues to exist. Anything can — it doesn’t matter the subject. But at some point, someone must actually want my poop for non-speculative trading it to have a value to speculate on. The question that keeps being bypassed is: who is actually in the position to do something productive with an FB stock? Note: I’m assuming that stocks don’t draw their value from the ether — no one wants stocks as art, at least no more than USD
wilkommen 5y ago
Right, you've got it. There is no reason why your apple stock should have a greater value if apple does better as a company, other than the fact that as a collective we've all chosen to believe that your share "represents" a "slice" of the company, and we've also all chosen to believe that other people will value your "slice" more when the company does "better". There is no material meaning behind saying that your apple stock is a "slice of the company." In no material way is that true in a practical sense. You are not entitled to a percentage of profits, and you do not have any say in the way the company operates. As for my other point, we've all chosen to believe that other people will buy our stock for more when the company "does better". But "doing better" doesn't necessarily mean "is more profitable." Just look at WeWork for a counterexample. We're all just trading meaningless tickets with ticker symbols on them believing that they're valuable because someone else will buy them for more later. And because we all believe this, it's actually true. It's like a collective fever dream that never ends. Stocks are no different from Air Jordans or Dutch tulips - the value of individual stocks changes according to the stories we tell about them, which can be influenced by the company becoming more profitable, making an acquisition, laying people off, getting a new CEO, or any number of things. The value has so much more to do with the stories we tell about the stocks than anything else - because the stories determine what someone else is willing to pay for them. It's not about math, it's about psychology and group psychology. I don't say this as like a really angry person shouting as a sky hoping it'll all stop. It just goes to show how as a group, we can make our expectations real by all expecting the same thing.
tablespoon 5y ago
> This I've never understood -- if a stock is detached from company earnings, then what drives the value of a stock, beyond the meaningless "someone else is willing to pay for it" -- why are they willing? It's not at all clear to me why my apple stock should have greater value, if apple does better as a company (or is predicted to do better). It seems like it's a similar collective fiction to the one that gives money its value, but a fiction that provides far less social utility than money. Random thought: owning stocks gives you two things: voting rights and dividends. Take the dividends away, and you're left with voting rights. Those are typically pretty much worthless unless you own a billionaire's amount of shares (and sometimes not even then, if some other billionaire has super-voting shares). The collective fiction that small shareholdings have value without dividends mainly serves to create buy-in for a system that creates greater fools for those people.
- wilkommen 5y ago
  Yes you've nailed it! Said it even better than me. Stocks are a collective fiction just like money. Except stupider, and only beneficial to a relatively small number of people. And to your second point, it's true - even billionaires don't profit directly from owning stock in public companies. They profit from that stock by selling it to other billionaires or institutions. Billionaires make money from owning stocks in public companies in more or less the same way as retail traders. Billionaires who own private companies though, that's a whole other thing. If you own a private company in part or in whole, it is possible to just take the company's profits and pay them directly to yourself. But owning and selling stocks is so profitable that I think for the most part billionaires don't bother with private companies - that's why they always want companies they've invested in to IPO. That's when they cash out. Anyway thanks for posting!
- mbg721 5y ago
  Derivatives add another layer to the collective fiction. Even if they're useful for hedging, it still seems weird to me that you can use options to construct something mathematically equivalent to a share of stock without ever buying the actual stock.

joelwilliamson 5y ago

In 2019, 84% of the S&P 500, 69% of the S&P MidCap 400 and 53% of the S&P SmallCap 600 paid dividends. I would not characterize dividends as "relatively rare", and I'm curious why you think they are. https://www.streetinsider.com/Dividends/S%26P+500+Companies+Paid+Nearly+Half+a+Trillion+Dollars+in+Dividends+in+2019%2C+a+New+Record/16308696.html https://www.streetinsider.com/Dividends/S%26P+500+Companies+...

wilkommen 5y ago
My point isn't really how many stocks offer dividends, but more that the price of the stock isn't really connected to the size dividend at all. Companies can and do change the amount of the dividend without your approval, and many stocks don't offer dividends at all, and no one sees a stock not offering a dividend as a demerit on its desirability or value. Except for people who buy the companies on Dividend Kings list, no one is evaluating the value of stocks purely on the expected future dividend returns. For the most part, the dividend is sort of a "bonus" and the real return you hope to get from the stock is in the form of appreciation.

fairity 5y ago

This is so off-base that I didn't even feel like responding at the time it was written. Anyone who believes that owning shares in a company does NOT give you partial rights to future profit distributions needs to go educate themselves on how the stock market works.