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Another related truth is: 3) The stock of most companies actually doesn't entitle you to a share of the profits, because they either don't pay a dividend (very

Another related truth is: 3) The stock of most companies actually doesn't entitle you to a share of the profits, because they either don't pay a dividend (very common), or if they do pay a dividend, the size of the dividend that the stock pays has no fixed relationship with the profitability of the company. So if the stock doesn't entitle you to a meaningful voice in the company's affairs (which common stock doesn't), and it also doesn't entitle you to a share of the profits, then from the perspective of the stockholder, there is no way to calculate its value on fundamentals alone, because there are no fundamentals! Common stock is a digital piece of paper no more intrinsically valuable than a rare baseball card. So in the current environment, with stocks being what they are, the value of all stocks are calculated based solely on people's expectations of what others will pay for them.

ratelimitsteve 1y ago
I knew that dividends were small enough that I as an individual investor find them more or less meaningless, but I didn't realize that they were literally non-existent in so many cases. Thank you for that little nugget. What good do institutional investors derive from buying stock and holding it for a long time, then? Is it just the assumption that the value of the stock will appreciate at a predictable rate over the course of years?
- jpc0 1y ago
  It’s commonly held wisdom that in the long run the market always goes up. There was a Buffet experiment relating to active management vs an ETF tracking the S&P for some amount of time (a decade?), the ETF won as far as I remember. You are usually better off holding, because most active management is indistinguishable from random chance at best and usually is literally worse than doing nothing.
  - ratelimitsteve 1y ago
    I suppose any asset is more inflation-resistant than cash, so at least there's that.
Gibbon1 1y ago
There is an argument that common stock is just a type of fiat currency issued by a non bank corporation.
- wilkommen 1y ago
  I agree. Common stock has basically become a special currency that by design experiences high, sustained inflation, which wealthy people use to suck wealth out of the real economy. If the rules were changed such that every stock has to offer a dividend at a fixed percentage of earnings, or some other kind of rules were put in place that would tie the value of common stock to the real economy, the whole system would change overnight.

ratelimitsteve 1y ago

I knew that dividends were small enough that I as an individual investor find them more or less meaningless, but I didn't realize that they were literally non-existent in so many cases. Thank you for that little nugget. What good do institutional investors derive from buying stock and holding it for a long time, then? Is it just the assumption that the value of the stock will appreciate at a predictable rate over the course of years?

jpc0 1y ago
It’s commonly held wisdom that in the long run the market always goes up. There was a Buffet experiment relating to active management vs an ETF tracking the S&P for some amount of time (a decade?), the ETF won as far as I remember. You are usually better off holding, because most active management is indistinguishable from random chance at best and usually is literally worse than doing nothing.
- ratelimitsteve 1y ago
  I suppose any asset is more inflation-resistant than cash, so at least there's that.

Gibbon1 1y ago

There is an argument that common stock is just a type of fiat currency issued by a non bank corporation.

wilkommen 1y ago
I agree. Common stock has basically become a special currency that by design experiences high, sustained inflation, which wealthy people use to suck wealth out of the real economy. If the rules were changed such that every stock has to offer a dividend at a fixed percentage of earnings, or some other kind of rules were put in place that would tie the value of common stock to the real economy, the whole system would change overnight.