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False. There is plenty of dispute about the NPV of all future dividends and the discount rate, but the notion is a fundamental truth. It is follows from basic
by jcampbell1 15y ago
False. There is plenty of dispute about the NPV of all future dividends and the discount rate, but the notion is a fundamental truth. It is follows from basic math and is provable.
- joshu 15y agoindeed. pretty much all the points arguing with you are actually just discussing ways to value npv.
- dpark 15y agoOkay, but that's not what he's claiming. He's claiming that NPV is derived exclusively (and rationally, and perhaps clairvoyantly) from the future sum of dividends.
- joshu 15y agoThe value of the stock is the current estimation of that npv. How it is estimated is irrelevant. It is the group estimation across all buyers and sellers.
- dpark 15y agoI feel like you're taking part in some unrelated discussion. This entire discussion started because jcampbell claimed that NPV was derived from the sum of future dividends. (Actually, he claimed that stock price was NPV of those future dividends.) No one here seems to be disputing that stock has a NPV. They're disputing jcampbell's claim that NPV is derived exclusively from future dividends. You're arguing against a claim that no one is making.
- joshu 15y agoi think we have a disconnect. what do you think an npv of a stock is?
- dpark 15y agoThe sum of all the cash flows related to the stock (discounted for time). Dividends are not the only factor there. For most investors and most stock, the future sale price (i.e. when I sell my share) is the major factor, and any dividends are a minor factor.
- joshu 15y agoWhen you sell your share, someone else buys it. How do THEY value it? someday in the distant future, the stock is going to pay a dividend. cash flows are what enable them to do it. eventually the company has nothing to do with the cash but to pay it out.
- dpark 15y agoThey might value it by expecting dividends, or they might value it by expecting the share price to grow, or they might value it by expecting a profitable acquisition. Hell, they might buy it hoping the company will liquidate and disburse its holdings. Dividends are only one possible payout that can come from buying stock. You and jcampbell are making the same mistake. You're looking at dividends, seeing a reasonable explanation for stock pricing, and then simply asserting that what's reasonable must be true. But it's not true. A ton of things factor into stock pricing and value. Some are rational, like attempting to estimate the future value of dividends or an acquisition. Some are irrational, like assuming that upward trajectory will continue "just because". And others are in the middle, like believing that timing the market is possible.
- joshu 15y agoUnfortunately, I am perhaps summarizing too aggressively. And this format does not really lend itself to a discussion. Companies make money. They either pay out the revenue as dividends or invest in the company. Eventually, they are unable to invest in the company, at which point the revenue leaves the company in the form of dividends. I'm not saying that people don't have a variety of reasons for thinking the stock will move or be worth more or less. My point is that the UNDERLYING VALUE of the stock is that it represents a future revenue stream. The reason the price moves up or down is due to supply and demand actually changing. And the reason that happens is that some subset of people think that the stock is under or overpriced. Thinking that the stock price represents anything other than the aggregate opinion of the value of the stock is going to be difficult unless you want to deny the efficient markets hypothesis. (I actually spent years as an algorithmic trader. But what do I know?)
- dereg 15y agoYou would have done well at Lehman Brothers, really really well.
- dpark 15y agoIt's provable? Please enlighten me.