Stock Markets Exposed
What gives stocks value?
I have been struggling with this question over the last few weeks after reading an article by Andy Kessler. He argues against the value of buying stocks with dividends since it is a signal (in his mind) that the company is giving dividends because they have no other projects to invest in that would provide further gains in income. In fact, it seems like he argued against giving dividends at all. I tend to agree with him on that one, or at least a little bit. However, if I open up a small business, I do so primarily for income. Therefore, if I buy a stock with no dividends, I am looking for capital gains resulting from an increase in demand for the stock. Let's say if a company NEVER gives out dividends, then it seems like people just buy the stock for capital gains, but capital gains result from people buying the stock (i.e. demand), which results in capital gains appreciation. Seems a little circular and that stocks have no fundamental value in that case, only pieces of paper.
Public Comments
- Because they have no other projects to invest in? HA. This guy sounds like an idiot. He's probably never read a 10-K statement on a large-cap profitable company. There are plenty of companies that pay out dividends that are still investing in projects and growing. Don't believe everything you read. And try to find more evidence that just one guy's opinion before you believe something.
- A stock is worth the share price for a given moment. Share prices vary according to market movement. Market movement comes from LARGE investors attempting to manipulate the stock price to make huge gains on options plays (bets that the stock will go up or down) OR, in some cases...... a LARGE investor providing capital so that a company can operate and make more profit, or, from the company itself selling more stock than those who are trying to buy it so that they can have that money for investment in infrastructure improvements to expand or build capital earnings potential or pay company officers and staff. Ideally a stock price would increase and decrease with earnings and projected earnings. But that rarely happens overall. If that were the case, a company could not survive because there would only be people buying at earnings dates and selling right afterwards. A company has to grow it's capital and stocks are one way of doing that. They would be sabotaging their own efforts if they became completely transparent and predicable.
