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> The fundamental idea behind investing in a company is that one day they will grow and be so profitable that they will start to send cash back to investors. I

> The fundamental idea behind investing in a company is that one day they will grow and be so profitable that they will start to send cash back to investors. Is this really the fundamental idea behind equity investing at this point? My impression is that (a) dividends are becoming more rare and (b) the valuation of dividend-paying equities is not explained solely by dividend cash flow. Does anyone expect Tesla, Amazon, Google to start paying dividends? The fundamental idea is buy low, sell high, right? Or has that just become the fundamental idea because so much of the market is now part of the same monopoly-money-fueled bubble? Crypto, AI, green tech, alt meat, electric cars, space stuff… very few of these things are profitable in the traditional sense, so their valuations are instead predicated on the notion that the entire global economy will just flip a switch one day and become a tech utopia, ignoring the fact that the current infrastructure, supply chain and economic system took generations to build. People seem to have baked in the idea that billionaires and governments and greater fools alike will continue to pour money into this indefinitely, but what happens if/when it comes to light that “none of this scales”?

sabellito 5y ago
I was following your argument until "[...] on the notion that the entire global economy will just flip a switch one day and become this green tech utopia". I'm no equity investor, but this assumption feels quite exaggerated.
- plaidfuji 5y ago
  I got a bit carried away there. My point is that some percentage of people’s valuation of crypto, and similarly, Tesla, and some other green tech plays, is based on the assumption that the entire global economy will transition to their way of doing things. Most crypto enthusiasts hope for (or at least would welcome) the death of the fiat system. Tesla’s valuation eclipsing 10 other carmakers (or whatever it is) basically says “I assume Tesla will be making ~half of all cars globally in the near future”. Alt meat is similar - all of these valuations are based on an assumption of market penetration (and cost reduction!) that would require a massive realignment of supporting infrastructure.
crenwick 5y ago
The author is a value investor, which is an out dated death cult among equity investors at large. You’re spot on to question his importance of measuring equities via dividends. He also places value on metrics like P/E, which has never (“never”, like since the start of the US stock market) been an indicator of a strong stock.
mrep 5y ago
Google is effectively paying dividends to the tune of 60 billion dollars a year through share buybacks [0]. Share buybacks reduce the number of outstanding shares increasing the P/E ratio which should increase the stock price. You can realize your dividend by selling a proportional amount of stock which might be bought by Google themselves. [0]: https://ycharts.com/companies/GOOG/stock_buyback https://ycharts.com/companies/GOOG/stock_buyback
- im3w1l 5y ago
  So I figured with all the stocks they are handing out to employees, they would have have a net increase in outstanding shares. And this used to be the case. But in 2018 the number of shares peaked and now they are indeed decreasing.

sabellito 5y ago

I was following your argument until "[...] on the notion that the entire global economy will just flip a switch one day and become this green tech utopia". I'm no equity investor, but this assumption feels quite exaggerated.

plaidfuji 5y ago
I got a bit carried away there. My point is that some percentage of people’s valuation of crypto, and similarly, Tesla, and some other green tech plays, is based on the assumption that the entire global economy will transition to their way of doing things. Most crypto enthusiasts hope for (or at least would welcome) the death of the fiat system. Tesla’s valuation eclipsing 10 other carmakers (or whatever it is) basically says “I assume Tesla will be making ~half of all cars globally in the near future”. Alt meat is similar - all of these valuations are based on an assumption of market penetration (and cost reduction!) that would require a massive realignment of supporting infrastructure.

crenwick 5y ago

The author is a value investor, which is an out dated death cult among equity investors at large. You’re spot on to question his importance of measuring equities via dividends. He also places value on metrics like P/E, which has never (“never”, like since the start of the US stock market) been an indicator of a strong stock.

mrep 5y ago

Google is effectively paying dividends to the tune of 60 billion dollars a year through share buybacks [0]. Share buybacks reduce the number of outstanding shares increasing the P/E ratio which should increase the stock price. You can realize your dividend by selling a proportional amount of stock which might be bought by Google themselves. [0]: https://ycharts.com/companies/GOOG/stock_buyback https://ycharts.com/companies/GOOG/stock_buyback

im3w1l 5y ago
So I figured with all the stocks they are handing out to employees, they would have have a net increase in outstanding shares. And this used to be the case. But in 2018 the number of shares peaked and now they are indeed decreasing.