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Can you tell me the difference between owning a share of Google and owning a baseball card? A share in Google currently gives you no claim to Google's profits.
by bokonist 18y ago
Can you tell me the difference between owning a share of Google and owning a baseball card? A share in Google currently gives you no claim to Google's profits. Nor does it give you any voting rights or control over management. So then what the heck is it good for?
Now, baseball cards can be quite valuable. The price can fluctuate enormously, You can make money from investing in them. The price correlates with real world events such as batting average. But fundamentally, the value is based purely on fads, perception, herd behavior, and marketing. At any time, the floor can drop out. The price can plummet and never recover ( baseball cards were my first investing experience and I'm still scarred :-) )
A dividend paying stock has fundamental value. As long as the company's business remains strong, you will earn money from owning the stock, even if everybody else in the world believes it is worthless.
- netcan 18y agoIt's very important not to think about all this to much. Stocks go up. It's all very complicated. You should leave it to the pros who take care of your retirement fund. It's threads like this that cause economic meltdowns.
- MaysonL 18y ago+1 Funny.
- quasimojo 18y agoyou are just moving the argument. are the dollars you get paid in dividends intrinsically valuable? no. people could value dollars to zero at any time. you are just replacing one piece of paper with another.
- pg 18y agoWhat makes Google stock valuable is the prospect of future dividends. And these are not merely theoretical: once a company's growth slows, they have to start paying dividends, or the market will punish their stock price.
- bokonist 18y agoYou would think this would be the case. The trouble is, many tech companies have entered their decline phase, don't pay dividends, and still have relatively high P/E ratios (Yahoo, Dell, Sun, Palm, Alcatel, etc.). That doesn't seem right at all.
- pg 18y agoThe ones that die before paying dividends are the bad bets. What wouldn't seem right would be if there were no bad bets. In something as risky as tech startups, most bets should be bad.
- bokonist 18y agoThe companies I mentioned are not startups, nor are they dead. They were among the tiny percentage of startups that were wildly successful. Now they are mature, public companies that have either plateaued or started to slowly decline. But they will still be profitable for many years, and they should return those profits to the shareholders. That they are are not doing so is historically unprecedented. Other mature tech companies not paying dividends include Adobe, Autodesk, Apple, Cisco, EA, Activision, Intuit, Oracle, Symantec, Amazon, and Ebay. And the few that do pay dividends (IBM, HP, and Microsoft for instance) have a very low dividend yields. It seems to me that there has been a breakdown of corporate governance.
- helveticaman 18y agoI can't find examples of companies going through voluntary liquidation (what Michael Dell recommended Apple do in 1997). It's hard to find tech companies that pay dividends. Adobe, for instance, is in the perfect position to pay dividends. It is a group of cash cows that might suddenly get destroyed by new market entrants. They're putting the money in a vault [1], but they're not paying dividends [2]. The problem, as I see it, is that companies refuse to admit they're dying. It's the weirdest thing. [1] http://finance.google.com/finance?q=adbe http://finance.google.com/finance?q=adbe [2] http://sec.edgar-online.com/2008/04/04/0001047469-08-004108/Section11.asp http://sec.edgar-online.com/2008/04/04/0001047469-08-004108/...