5 ms·

> A stock is worth the present value of future dividends. Not every stock pays dividends. A stock's worth is determined by supply and demand in a market or dir

by IncRnd 4y ago

> A stock is worth the present value of future dividends. Not every stock pays dividends. A stock's worth is determined by supply and demand in a market or directly between the seller and the prospective purchaser.

eftychis 4y ago
In fact it is a terrible idea to pay dividends. You can thank the tax code if you subscribe to that school of thought.
- HWR_14 4y ago
  Why on earth would you think dividends are a terrible idea?
  - echelon 4y ago
    1. Theoretically speaking, this means the company has nowhere else better to put that cash [1]. Rather than reinvesting back into itself to fuel growth, dividends return company proceeds to investors. It's a sign of slow or no growth. 2. As an investor, you can't control when and how you're taxed. Dividends are taxable when they are paid out. A company stock buyback, on the other hand, would increase the value of your shares and let you sell when you're ready. [1] Discounting stocks like REITs which are required to return profit in the form of dividends.
    - geysersam 4y ago
      > Nowhere better to put their money Same could be said about stock buybacks. In principle they're the same, only one has better tax characteristics. > Rather than investing into itself. Why would a mature business continue to invest into itself perpetually? What's in it for the investor?
    - boppo1 4y ago
      This content of your post is exactly what the article is addressing.
- mvhvv 4y ago
  What do you think the value is in a stock that doesn't pay dividends? It seems to me that if you remove them, you're getting into pyramid-scheme territory.
  - nmfisher 4y ago
    (1) the expected value of the company changing its mind and choosing to pay dividends in future + (2) the value of vote to remove management and replace them with someone who will pay dividends + (3) a legal right to share in the proceeds of sale/dissolution of the company. These are actually worth quite a lot. But you do make a good point, particularly when it comes to companies like Facebook, who don't pay dividends but have dual class structures so management can't be ousted. I don't know why regulators allow these companies to be floated like that, they're pretty much the antithesis of what public companies are supposed to be. If Zuck's metaverse bet fails (which I anticipate it will), and he doesn't pull another rabbit out of the hat, I expect we're going to see a lot more institutional investors complaining about dual class structures in the next few years.
    - benj111 4y ago
      The op stated > A stock is worth the present value of future dividends 1 and 2 are a restating of that. 3 is another way of returning money, but the money still has to be there.
    - PedroBatista 4y ago
      I don’t know much about FB structure but there has been some murmurs about the board offering Zuckerberg a one way plane ticket to Hawaii soon. Is this even possible? “No one” cares about dividends since they are taxed like income and after corporate buy backs going the route next year I wonder what Wall Street will come up with..
  - ummonk 4y ago
    You can sell your shares back to the company. That's the stock buyback that the linked article hates so much. It's just a more tax efficient alternative to dividends.
geysersam 4y ago
> A stocks worth is determined by supply and demand That's a tautology. It's like saying the price is the price.
- IncRnd 4y ago
  > That's a tautology. It's like saying the price is the price. That's silly. Your quote was incomplete and selective.
- mejutoco 4y ago
  This was a novel idea, at some point. For the stock it is a tautology, but for generally determining the worth it is a deep idea. It requires buying into a point of view of this model and, like all models, it is a (useful) approximation. If one accepts that the worth of something is the price that supply and demand establish, there is no room for workers being underpaid (or overpaid), according to this model. They are paid exactly what the market determines (so what they are worth). Of course this is extremely simplistic, but you get the idea. Funny, however, how this often touted as self-evident does not stop people from saying x profession earns too much, while the same time advocating for the market as the ultimate solution to all our problems.
  - ummonk 4y ago
    Ehh, we have pretty good policy levers to alter the supply of labor for a given profession.
    - mejutoco 4y ago
      We can have policy levers for anything. What I am saying is that under the market model supply and demand determine the worth of something. Under that logic, nothing can be overvalued or undervalued. Of course that model is too simplistic.
  - geysersam 4y ago
    That's not what I meant. The price is whatever the market pays. That's the definition, nobody disagrees. The value is a different question. As you point out. In our time, claiming those are the same (or even that they are meaningfully related) borders on fanaticism.
benj111 4y ago
There has to be some basis for valuation. If you buy a stock, not because you expect it to pay something but because you expect someone to pay more later for the same reason you don't have investment. You have speculation. Yes there are other methods for distributing profits (stock buy backs) but unless you're saying it's a massive Ponzi scheme, then the value has to come from something real.
- fragmede 4y ago
  The market can stay irrational far longer than you can stay solvent. What the years of free money proved is that the points are made up anyway. If you stayed playing the old game of PE ratios and market fundamentals you lost out on a ton of gainz in years past other than this one. The value comes down to how much the next sucker is winning to pay for what you're selling.
  - benj111 4y ago
    Just because the market is irrational, doesn't mean you have to be. To bastardise buffet. I'd much rather everyone else gorge themselves on hotdogs so I can have my favourite burger restaurant to myself. When they come to their senses I will have to pay more for my burgers, if I can even get a seat in the restaurant. 'gainz' are only 'gainz' when you come to sell, and I have more confidence that something that I bought at current inherent value will maintain that value when I want to sell, compared to something with no inherent value.

by IncRnd 4y ago

eftychis 4y ago

In fact it is a terrible idea to pay dividends. You can thank the tax code if you subscribe to that school of thought.

HWR_14 4y ago
Why on earth would you think dividends are a terrible idea?
- echelon 4y ago
  1. Theoretically speaking, this means the company has nowhere else better to put that cash [1]. Rather than reinvesting back into itself to fuel growth, dividends return company proceeds to investors. It's a sign of slow or no growth. 2. As an investor, you can't control when and how you're taxed. Dividends are taxable when they are paid out. A company stock buyback, on the other hand, would increase the value of your shares and let you sell when you're ready. [1] Discounting stocks like REITs which are required to return profit in the form of dividends.
  - geysersam 4y ago
    > Nowhere better to put their money Same could be said about stock buybacks. In principle they're the same, only one has better tax characteristics. > Rather than investing into itself. Why would a mature business continue to invest into itself perpetually? What's in it for the investor?
  - boppo1 4y ago
    This content of your post is exactly what the article is addressing.
mvhvv 4y ago
What do you think the value is in a stock that doesn't pay dividends? It seems to me that if you remove them, you're getting into pyramid-scheme territory.
- nmfisher 4y ago
  (1) the expected value of the company changing its mind and choosing to pay dividends in future + (2) the value of vote to remove management and replace them with someone who will pay dividends + (3) a legal right to share in the proceeds of sale/dissolution of the company. These are actually worth quite a lot. But you do make a good point, particularly when it comes to companies like Facebook, who don't pay dividends but have dual class structures so management can't be ousted. I don't know why regulators allow these companies to be floated like that, they're pretty much the antithesis of what public companies are supposed to be. If Zuck's metaverse bet fails (which I anticipate it will), and he doesn't pull another rabbit out of the hat, I expect we're going to see a lot more institutional investors complaining about dual class structures in the next few years.
  - benj111 4y ago
    The op stated > A stock is worth the present value of future dividends 1 and 2 are a restating of that. 3 is another way of returning money, but the money still has to be there.
  - PedroBatista 4y ago
    I don’t know much about FB structure but there has been some murmurs about the board offering Zuckerberg a one way plane ticket to Hawaii soon. Is this even possible? “No one” cares about dividends since they are taxed like income and after corporate buy backs going the route next year I wonder what Wall Street will come up with..
- ummonk 4y ago
  You can sell your shares back to the company. That's the stock buyback that the linked article hates so much. It's just a more tax efficient alternative to dividends.

geysersam 4y ago

> A stocks worth is determined by supply and demand That's a tautology. It's like saying the price is the price.

IncRnd 4y ago
> That's a tautology. It's like saying the price is the price. That's silly. Your quote was incomplete and selective.
mejutoco 4y ago
This was a novel idea, at some point. For the stock it is a tautology, but for generally determining the worth it is a deep idea. It requires buying into a point of view of this model and, like all models, it is a (useful) approximation. If one accepts that the worth of something is the price that supply and demand establish, there is no room for workers being underpaid (or overpaid), according to this model. They are paid exactly what the market determines (so what they are worth). Of course this is extremely simplistic, but you get the idea. Funny, however, how this often touted as self-evident does not stop people from saying x profession earns too much, while the same time advocating for the market as the ultimate solution to all our problems.
- ummonk 4y ago
  Ehh, we have pretty good policy levers to alter the supply of labor for a given profession.
  - mejutoco 4y ago
    We can have policy levers for anything. What I am saying is that under the market model supply and demand determine the worth of something. Under that logic, nothing can be overvalued or undervalued. Of course that model is too simplistic.
- geysersam 4y ago
  That's not what I meant. The price is whatever the market pays. That's the definition, nobody disagrees. The value is a different question. As you point out. In our time, claiming those are the same (or even that they are meaningfully related) borders on fanaticism.

benj111 4y ago

There has to be some basis for valuation. If you buy a stock, not because you expect it to pay something but because you expect someone to pay more later for the same reason you don't have investment. You have speculation. Yes there are other methods for distributing profits (stock buy backs) but unless you're saying it's a massive Ponzi scheme, then the value has to come from something real.

fragmede 4y ago
The market can stay irrational far longer than you can stay solvent. What the years of free money proved is that the points are made up anyway. If you stayed playing the old game of PE ratios and market fundamentals you lost out on a ton of gainz in years past other than this one. The value comes down to how much the next sucker is winning to pay for what you're selling.
- benj111 4y ago
  Just because the market is irrational, doesn't mean you have to be. To bastardise buffet. I'd much rather everyone else gorge themselves on hotdogs so I can have my favourite burger restaurant to myself. When they come to their senses I will have to pay more for my burgers, if I can even get a seat in the restaurant. 'gainz' are only 'gainz' when you come to sell, and I have more confidence that something that I bought at current inherent value will maintain that value when I want to sell, compared to something with no inherent value.