4 ms·

For me, Facebook has become the best example of why investing in stocks that don't pay dividends doesn't make sense. That's not to say that investors can't make

by blawson 14y ago

For me, Facebook has become the best example of why investing in stocks that don't pay dividends doesn't make sense. That's not to say that investors can't make fortunes in companies that don't - obviously they, the investors, can. But otherwise what is non-dividend stock but a ponzi/confidence game? The way shares are classed as well now you don't even really "own" a piece of the company. You have limited to no voting privileges, and don't share in the company's profits. No wonder the banks have to push them onto investors! Basically you are hoping someone comes along who also doesn't mind buying a stake in a company where the only benefit is that there might be a third person in the future who will pay even more, and so on. Have I got it wrong? I can understand stock when you are expecting your investment to generate returns based on a company's performance, but most stock these days buys you nothing but the ability to sell it to someone else down the road. Ownership itself has no value.

JumpCrisscross 14y ago
Financial theory says every stock should have an expectation of generating dividends or resulting in a payout when the company is acquired (the acquirer being able to directly harvest the free cash flow). Yes, it's a confidence "game" on the company's fortunes when one buys with the expectation of selling before one of these outcomes are realised. But then so is staying in a country a confidence game that it won't blow up, holding cash that it won't be inflated away, holding gold that it won't plummet, etc. It is not a Ponzi scheme as the shares try to approximate the productive value of the assets they represent ownership to - buying a tractor and putting it in your house is about the same as buying a piece of paper that says you own a tractor in a lot and neither is remotely Ponzi-ensqe for lack of presently producing cash flows. Stock of non-fraudulent companies represent real net assets while Ponzi shares don't.
dedward 14y ago
You have no voting rights, but if someone wants to buy the company, you do own a piece of it. it's not much different than, say, a 2 person company where one person has the majority vote. The second person's vote is worthless anyhow - but if hte company is sold, they are entitled to their share of the sale.
fauigerzigerk 14y ago
You're right, if it was a certainty that a particular company was never going to return any money to its owners in any shape or form, owning it would be pointless and its market value would go to near zero immediately. But successful companies do return money to shareholders eventually. The question is when. If you owned Microsoft in 1986, would you have asked for a dividend instead of letting them use the money to build their Windows and Office franchise? So, no, it's not a ponzi scheme. You're buying future dividends. In the case of Microsoft, every dollar you invested in Microsoft's IPO earns you two dollars in dividends today. At any moment in time, you have ask: Can the company invest my money better than I can, adjusted for risk? If the answer yes, then any dividend payout is a net loss for you.
marvin 14y ago
Yes, you've got it wrong. This is the baseball card view of the stock market, and it is incorrect. When you own shares in a company, you own part of the company - part of the money on the company's bank accounts and part of the company's assets belong to you. The board, which is chosen by the shareholders, decides how to allocate these resources. Whether the profits are paid out to your bank account or stays in the company is irrelevant with regards to ownership. Part of the assets belong to you regardless. Of course, the board can make stupid decisions, and the value of the company will fluctuate depending on investors' view of the company's future. But as a shareholder, you do own part of the company and if the board acts against your interests, shareholder laws are there to protect you.

by blawson 14y ago

JumpCrisscross 14y ago

Financial theory says every stock should have an expectation of generating dividends or resulting in a payout when the company is acquired (the acquirer being able to directly harvest the free cash flow). Yes, it's a confidence "game" on the company's fortunes when one buys with the expectation of selling before one of these outcomes are realised. But then so is staying in a country a confidence game that it won't blow up, holding cash that it won't be inflated away, holding gold that it won't plummet, etc. It is not a Ponzi scheme as the shares try to approximate the productive value of the assets they represent ownership to - buying a tractor and putting it in your house is about the same as buying a piece of paper that says you own a tractor in a lot and neither is remotely Ponzi-ensqe for lack of presently producing cash flows. Stock of non-fraudulent companies represent real net assets while Ponzi shares don't.

dedward 14y ago

You have no voting rights, but if someone wants to buy the company, you do own a piece of it. it's not much different than, say, a 2 person company where one person has the majority vote. The second person's vote is worthless anyhow - but if hte company is sold, they are entitled to their share of the sale.

fauigerzigerk 14y ago

You're right, if it was a certainty that a particular company was never going to return any money to its owners in any shape or form, owning it would be pointless and its market value would go to near zero immediately. But successful companies do return money to shareholders eventually. The question is when. If you owned Microsoft in 1986, would you have asked for a dividend instead of letting them use the money to build their Windows and Office franchise? So, no, it's not a ponzi scheme. You're buying future dividends. In the case of Microsoft, every dollar you invested in Microsoft's IPO earns you two dollars in dividends today. At any moment in time, you have ask: Can the company invest my money better than I can, adjusted for risk? If the answer yes, then any dividend payout is a net loss for you.

marvin 14y ago

Yes, you've got it wrong. This is the baseball card view of the stock market, and it is incorrect. When you own shares in a company, you own part of the company - part of the money on the company's bank accounts and part of the company's assets belong to you. The board, which is chosen by the shareholders, decides how to allocate these resources. Whether the profits are paid out to your bank account or stays in the company is irrelevant with regards to ownership. Part of the assets belong to you regardless. Of course, the board can make stupid decisions, and the value of the company will fluctuate depending on investors' view of the company's future. But as a shareholder, you do own part of the company and if the board acts against your interests, shareholder laws are there to protect you.