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Yes, that's how it works. How much would you pay for something that has X% (where X > 0) risk, and 0% growth? You would likely pay $0. Because you can put yo

Yes, that's how it works. How much would you pay for something that has X% (where X > 0) risk, and 0% growth? You would likely pay $0. Because you can put your money in a 'risk free' investment, like a bank account, and get a minimum return. There is the 'enterprise value' which would include assets (i.e. maybe Apple has $20T in cash in which case, obviously their stock is worth whatever their assets are worth, but at some risk-premium discount). Most companies have some assets but usually not a ton relative to their value. Of course, 'risk free rate' may be negative (not common, but could happen), and so 'losing money' on a stock that doesn't grow would be better than keeping it under your mattress or in the bank, but we're not there yet. But otherwise, a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money.

harperlee 4y ago
> How much would you pay for something that has X% (where X > 0) risk, and 0% growth? Surely at least book value, in case that risk is not infinite? > a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money. A company is a money making machine. If it doesnt work it produces each year the same amount of money. How can that be worthless?
kgwgk 4y ago
You seem a lost cause, but for the benefit of bystanders I'll just clarify that zero growth doesn't mean zero return. A non-growing company with annual profits around $100bn is obviously worth much more than $0.
- astrange 4y ago
  What's the point in buying shares of a company with no possible upside? That's not a useful product for a retail investor, and it's not usable for stock compensation for employees either.
  - yazaddaruvala 4y ago
    In this example by the parent commenter the $100 BB divided up as dividends or stock buy backs is useful regardless of y/y revenue or profit growth.
    - astrange 4y ago
      That's not useful to a retail investor though. You know its exact value and so does whoever's selling it to you, meaning you can't get a bargain on it. It might be useful if you got it for free, but in that case you should sell it to a bank or someone who can actually use a fixed-income asset.
      - kgwgk 4y ago
        Remember that this subthread started when someone claimed that « With 0% growth their equity price is near 0. »
  - doktorhladnjak 4y ago
    Income
    - astrange 4y ago
      Tax-inefficient income with no inflation protection. Unless it's a whole small business you're buying into, government bonds are better.
      - doktorhladnjak 4y ago
        Because a company has more downside risk than government bonds, the income they produce would need to be higher. Probably would look very similar to other corporate bonds which is basically what zero upside stock would look like.
  - kgwgk 4y ago
    > What's the point in buying shares of a company with no possible upside? As the Beatles would say, to get you money to buy you things. A black box that spits out one dollar bill (after tax, if that’s your concern) every hour is a useful product to anyone even if there is « no possible upside ». Don’t you see the point in getting one if the price is right? Wouldn’t you pay $10000 to get one? $1000? $100? $10? $1?
- jollybean 4y ago
  I'm doing just fine. Go ahead and invest in companies with 0% growth and see how well you do with your retirement. Yes, companies can have a positive 'book / enterprise' value that must be heavily discounted by all kinds of risks, and future 0% growth cash flows even much heavily discounted, in which case, theoretically, yes, there are a few companies around that might have giant pools of liquid assets that might be worth something ... ... but in general, companies that don't grow are worthless. Owning a quickly evaporating pool of cash vs. one that is growing, compounds quickly over time.
  - yazaddaruvala 4y ago
    I think you have mistaken “growth” to mean “stock growth”. The rest of this thread is talking about y/y revenue and profit growth. If profits are sustained at $100 BB annually every year perpetually, and I own 0.01% of the company. They can afford to (and can be made obligated to) pay me $10 MM annually through dividends or equivalent stock buy backs. This is a useful company, and I would buy its stock for the right price.

harperlee 4y ago

> How much would you pay for something that has X% (where X > 0) risk, and 0% growth? Surely at least book value, in case that risk is not infinite? > a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money. A company is a money making machine. If it doesnt work it produces each year the same amount of money. How can that be worthless?

kgwgk 4y ago

You seem a lost cause, but for the benefit of bystanders I'll just clarify that zero growth doesn't mean zero return. A non-growing company with annual profits around $100bn is obviously worth much more than $0.

astrange 4y ago
What's the point in buying shares of a company with no possible upside? That's not a useful product for a retail investor, and it's not usable for stock compensation for employees either.
- yazaddaruvala 4y ago
  In this example by the parent commenter the $100 BB divided up as dividends or stock buy backs is useful regardless of y/y revenue or profit growth.
  - astrange 4y ago
    That's not useful to a retail investor though. You know its exact value and so does whoever's selling it to you, meaning you can't get a bargain on it. It might be useful if you got it for free, but in that case you should sell it to a bank or someone who can actually use a fixed-income asset.
    - kgwgk 4y ago
      Remember that this subthread started when someone claimed that « With 0% growth their equity price is near 0. »
- doktorhladnjak 4y ago
  Income
  - astrange 4y ago
    Tax-inefficient income with no inflation protection. Unless it's a whole small business you're buying into, government bonds are better.
    - doktorhladnjak 4y ago
      Because a company has more downside risk than government bonds, the income they produce would need to be higher. Probably would look very similar to other corporate bonds which is basically what zero upside stock would look like.
- kgwgk 4y ago
  > What's the point in buying shares of a company with no possible upside? As the Beatles would say, to get you money to buy you things. A black box that spits out one dollar bill (after tax, if that’s your concern) every hour is a useful product to anyone even if there is « no possible upside ». Don’t you see the point in getting one if the price is right? Wouldn’t you pay $10000 to get one? $1000? $100? $10? $1?
jollybean 4y ago
I'm doing just fine. Go ahead and invest in companies with 0% growth and see how well you do with your retirement. Yes, companies can have a positive 'book / enterprise' value that must be heavily discounted by all kinds of risks, and future 0% growth cash flows even much heavily discounted, in which case, theoretically, yes, there are a few companies around that might have giant pools of liquid assets that might be worth something ... ... but in general, companies that don't grow are worthless. Owning a quickly evaporating pool of cash vs. one that is growing, compounds quickly over time.
- yazaddaruvala 4y ago
  I think you have mistaken “growth” to mean “stock growth”. The rest of this thread is talking about y/y revenue and profit growth. If profits are sustained at $100 BB annually every year perpetually, and I own 0.01% of the company. They can afford to (and can be made obligated to) pay me $10 MM annually through dividends or equivalent stock buy backs. This is a useful company, and I would buy its stock for the right price.