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There has been a distortion in the markets lately with the value of cash. Over the long term, buying a share of any company (Amazon, Intel, Walmart) has to giv
by pdq 12y ago
There has been a distortion in the markets lately with the value of cash. Over the long term, buying a share of any company (Amazon, Intel, Walmart) has to give a return to the holder of that share. Otherwise, you are trading cash to hold onto a piece of paper and get it returned back as cash when you sell it.
This invalidates the time value of money. In other words, if I am not getting a quarterly/annual dividend (ie a profit payout) on a stock, over the long term there is no incentive to hold onto that stock, because I could get a dividend from a different stock or some other investment in general.
- vasilipupkin 12y agowell, you are betting that you will get a dividend at a much later point in the future because of the growth you think you will realize. if Amazon makes $100 it can either give it to you now, or reinvest it and give you the reinvested result much later. It makes sense to give you the $100 now, if they don't see any good investment opportunities. But they think they do, and market agrees with them, hence massive growth in stock price over the last 3-5 years.
- jmccree 12y agoIf the company can increase the value of your share by spending the money rather than giving it back as a dividend, why would they not? Buffet's Berkshire Hathaway is famous for never having given a dividend. Amazon is still seeing good revenue growth year after year, I see no reason not to continue down that path as long as they can afford the growth.
- ericd 12y agoIt's also a unit of control, which has increasing value as the value of the company increases.
- thaumasiotes 12y agoBy this argument, a bar of gold invalidates the time value of money. So does the existence of artwork.
- eru 12y agoArtwork pays a convenience yield. You can look at it. But I definitely agree with the gold example.