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There's only two reasons to buy stocks: 1) for future cashflows (aka dividends) derived from net profits. 2) to on-sell to somebody willing to pay even mo
by GianFabien 1y ago
There's only two reasons to buy stocks:
1) for future cashflows (aka dividends) derived from net profits.
2) to on-sell to somebody willing to pay even more.
When option (2) is no longer feasible, the bubble pops and (1) resets the prices to some multiple of dividends. Economics 101.
- Nition 1y agoJust like land :)
- heathrow83829 1y agoyes, but there will always be a #2 with QE being normalized now.
- dehrmann 1y ago> ...resets the prices to some multiple of dividends But wouldn't you want to pay more for a company that has a history of revenue and income growth than one in a declining industry? And you have to look at assets on the company's books; you're not just buying a company, you're buying a share of what it owns. What if it has no income, but you think there's a 10% chance it'll be printing money in 5 years? That's why prices won't naively reset to a multiple of ~~dividends~~ income (see the dividend irrelevance theory) across the board. Someone will always put a company's income in context.