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Point 2 is false: shares of stock derive their value from the fact that they represent ownership in a company. If the company is profitable or owns valuable as

Point 2 is false: shares of stock derive their value from the fact that they represent ownership in a company. If the company is profitable or owns valuable assets beyond their liabilities, then the shares themselves are valuable. Their value does not depend on current or future dividends, but on the company’s current assets and the market’s estimation of the value of the company’s future cash flows. Your point about crypto still stands: there are no future cash flows to consider with crypto, only the current value of the asset, although the comparison is really apples to oranges.

qgin 4y ago
But if there is no mechanism for giving cash to the shareholder, ownership is essentially worthless (from a money perspective) except for the possibility of amassing enough ownership to take a controlling stake in the company. But even a controlling stake is just a hobby unless somehow that stake returns cash to you at some point. I agree about assets though. Book value of assets does need to be added to the value of shares, though usually that’s the smallest part of a share’s valuation.
- MisterMower 4y ago
  You can sell stock to another person. The sale price will be higher, ceteris paribus, because the company is more valuable. This is how you make money investing in companies that don’t pay dividends. Google retained earnings for a more in depth explanation. Buying shares of stock in a company that doesn’t pay a dividend isn’t investing, it’s the textbook definition of speculation. You are buying something that you hope to sell at a higher price. Investing is when you put money into something, and it gives you more money back over a period of time. Buying and selling crypto is speculation.
  - jseban 4y ago
    > Buying shares of stock in a company that doesn’t pay a dividend isn’t investing, it’s the textbook definition of speculation. Yeah but this reflects the fact that starting and growing a company in itself is a type of speculative activity. Any optimism about the future is a type of speculation. If you have a proven profitable business model, that you see no way to scale, there's no reason to list the company in the first place. The main reason to even list a company is to take it through a growth phase, and companies get taken off the stock exchange all the time when they don't see any forthcoming growth, because then it's only annoying for them to compromise with the power/ownership for no reason. The stock market is an accelerator for companies, not a central bank that makes absolute valuations.
trashtester 4y ago
If a company was somehow set up in a way that prevented it from transferring wealth back to the owners by any means (buyback, dividends, salaries, or even creative ways, such as buying assets owned by it's owners), it's stock "value" would be close to zero, regardless of how much it owned in terms of assets. (One could imagine a non-profit trust set up this way.) In other words, the reason why a company's assets and expected future cash flow does set its valuation, is precisely the expectation that it will lead to dividends/buybacks at some point in the future.
- chii 4y ago
  > set up in a way that prevented it from transferring wealth back to the owners by any means and i noticed you omitted the method of the owner selling the share (to a third party). This is the primary way to transfer wealth generated from a company. > expectation that it will lead to dividends/buybacks at some point in the future. it doesn't need to be an expectation of such at all, as long as there is someone else in the market willing to purchase the share, at a price they and the owner deem acceptable. You could have the opinion that the lack of any possible cashflow returns to the owner as a proxy for the share being valueless, but as long as everyone else disagrees with you, and continue to transact the share in the secondary market, it has value.
  - trashtester 4y ago
    > and i noticed you omitted the method of the owner selling the share (to a third party). This is not a method for the company to transfer wealth to the owner. This is a way for a third party to exchange wealth with the owner. It doesn't affect the value of the shares. And for virtually any normal share in a company (that I know of) that either generates income or is expected to do so in the future, the share owners has the ability to extract that revenue directly through dividends, buybacks or even by liquidating the company and selling the assets directly. This means that they discussion is hypothetical for all such companies. If you could name one company that is being traded at a significant valuation that has been set up in a way that makes it impossible to extract value from it to its owners, I would be interested to know about it, as it might prove me wrong.

qgin 4y ago

But if there is no mechanism for giving cash to the shareholder, ownership is essentially worthless (from a money perspective) except for the possibility of amassing enough ownership to take a controlling stake in the company. But even a controlling stake is just a hobby unless somehow that stake returns cash to you at some point. I agree about assets though. Book value of assets does need to be added to the value of shares, though usually that’s the smallest part of a share’s valuation.

MisterMower 4y ago
You can sell stock to another person. The sale price will be higher, ceteris paribus, because the company is more valuable. This is how you make money investing in companies that don’t pay dividends. Google retained earnings for a more in depth explanation. Buying shares of stock in a company that doesn’t pay a dividend isn’t investing, it’s the textbook definition of speculation. You are buying something that you hope to sell at a higher price. Investing is when you put money into something, and it gives you more money back over a period of time. Buying and selling crypto is speculation.
- jseban 4y ago
  > Buying shares of stock in a company that doesn’t pay a dividend isn’t investing, it’s the textbook definition of speculation. Yeah but this reflects the fact that starting and growing a company in itself is a type of speculative activity. Any optimism about the future is a type of speculation. If you have a proven profitable business model, that you see no way to scale, there's no reason to list the company in the first place. The main reason to even list a company is to take it through a growth phase, and companies get taken off the stock exchange all the time when they don't see any forthcoming growth, because then it's only annoying for them to compromise with the power/ownership for no reason. The stock market is an accelerator for companies, not a central bank that makes absolute valuations.

trashtester 4y ago

If a company was somehow set up in a way that prevented it from transferring wealth back to the owners by any means (buyback, dividends, salaries, or even creative ways, such as buying assets owned by it's owners), it's stock "value" would be close to zero, regardless of how much it owned in terms of assets. (One could imagine a non-profit trust set up this way.) In other words, the reason why a company's assets and expected future cash flow does set its valuation, is precisely the expectation that it will lead to dividends/buybacks at some point in the future.

chii 4y ago
> set up in a way that prevented it from transferring wealth back to the owners by any means and i noticed you omitted the method of the owner selling the share (to a third party). This is the primary way to transfer wealth generated from a company. > expectation that it will lead to dividends/buybacks at some point in the future. it doesn't need to be an expectation of such at all, as long as there is someone else in the market willing to purchase the share, at a price they and the owner deem acceptable. You could have the opinion that the lack of any possible cashflow returns to the owner as a proxy for the share being valueless, but as long as everyone else disagrees with you, and continue to transact the share in the secondary market, it has value.
- trashtester 4y ago
  > and i noticed you omitted the method of the owner selling the share (to a third party). This is not a method for the company to transfer wealth to the owner. This is a way for a third party to exchange wealth with the owner. It doesn't affect the value of the shares. And for virtually any normal share in a company (that I know of) that either generates income or is expected to do so in the future, the share owners has the ability to extract that revenue directly through dividends, buybacks or even by liquidating the company and selling the assets directly. This means that they discussion is hypothetical for all such companies. If you could name one company that is being traded at a significant valuation that has been set up in a way that makes it impossible to extract value from it to its owners, I would be interested to know about it, as it might prove me wrong.