The purpose of both is to sell at a higher price than the price you bought at. People like to say owning stock means you own part of the company, but it doesn’t work like that in reality. The only time your stock will be liquidated for company assets is when the company goes bankrupt. It’s common knowledge that shareholders basically get zilch from bankruptcy since they only get what’s remaining after a company’s debt obligation is paid. Some ppl will say that stock has value due to future potential of dividends. But this doesn’t make sense because a company can set any arbitrary dividend rate. The dividend rate is not correlated to its profit margin. So why would one speculate on a stock based on future dividends when that decision is arbitrarily made by the board. You could say that a company can promise higher dividends in order to gain more funding via stock selling (basically a loan), but from what I understand, there’s no guarantees on that dividend rate. You might as well buy bonds at that point. So non-dividend stocks, from a logical point of view, are simply a pyramid scheme; their only value is to resell at a higher value. You do not own anything of real value with non-dividend stock.
No. You wrote all of this without considering a fundamental aspect that makes it moot. Stock buy backs. If Apple is willing to buy back shares from shareholders, the shares have intrinsic value tied to the companies earnings. The whole criticism of non-dividend paying companies is largely misinformed. Who cares if Alphabet doesn’t pay dividends when they buy back $50 billion in shares?
Aren’t stock buybacks just companies joining in the pyramid scheme? They can buyback now and sell for a higher price in the future. Why else would they buyback? It’s not like they need more shares for more voting power to make key company decisions. That’s preposterous
Responded in another thread but will continue here as well. That’s largely not how buy backs work. Most shares are completely removed from existence. Only a select few companies keep them. The ones that do use it for stock based compensation.
Companies have assets as well as revenue, neither of which is true for crypto. Both are also (kind of) orthogonal to stock price. If you don't think that shareholders own a part of the company, who does?
But shareholders aren’t getting any of that revenue or assets if the stocks do not pay out dividends. I have never heard of a company exchanging their physical assets for stocks unless during bankruptcy. So your stocks are meaningless.
The shareholders can force the company to pay out dividends at the shareholder meeting, though.
I'm addition to the reasons already mentioned, the company executives/board have a fiduciary obligation to act in the interests of the shareholders. In other words, if they do something that is considered against those interests they can be sued. In theory this keeps the company going in the direction of where the shareholders want it to go Don't forget about potential for stock buybacks and being acquired This is why it isn't dividends that are considered the value of a company -- it's things like current and future/potential earnings, assets on hand, etc. You will be hard pressed to argue that Google should be valued at $0, despite their massive current & expected future profits and balance sheet, just because they don't issue taxable cash distributions to shareholders Dividends is actually very low on the list in terms of valuation. If a company is issuing dividend but the future outlook is poor, the value will be depressed because it is seen as an unsustainable dividend and also a sign that the company is not investing in its own business Crypto is yet a different beast. Yes there is lots of speculation tied to the value. But they tend to be units that have current/future usefulness as financial or other decentralized instruments
The crux of the issue is that non dividend stock only gets liquidated for company assets at bankruptcy. So your stock is not going to do anything for you even if the company is doing well (bc its real value is only realized during bankruptcy). Furthermore, I have a hard time believing that the ability to cast your vote on some stock related issues has any effect on the stock price.
There are shareholder-originated lawsuits all the time. Regardless of how often they are successful, there is absolutely a legal pressure on executives, and corporate governance is a thing (not saying it is 100% perfect) Dunno, anything that is not literally cash can still have value due to the potential to be converted to cash. That is why cash & assets, and current + future profits are basically the ways to value businesses It might seem difficult to grasp, but it is how the modern financial system has been working globally. Equity ownership is a different concept from a fixed income security, though the underlying root is you could say the same which is current & future valuation
Just by googling your own title you would have been able to find the answer There are: - stock buybacks - future dividends - acquisition There is a reason why they are called "growth stock" because price includes a potential for the future payoffs while crypto has nothing of it and IS a pyramid scheme because it fundamentally cannot provide payoffs
I already addressed the problem with future dividends. The dividend rate is not related to the profit margin. So higher profits doesn’t mean higher dividends. Why would you speculate on a stock based on the companies profits, hoping for a future dividend, when that decision is arbitrarily made by the board. Stock buybacks are simply a product of the pyramid scheme. What stops a company from buying back stock at any arbitrary price they want? If the price is determined by the market predicting stock buybacks, then that is a circular relation that doesn’t make sense. Acquisition makes sense bc a company is using real money to buy company assets. But we often see acquisitions where the acquirer pays with their own stock.
o_0 in what world buybacks is pyramid scheme. Its literally mathematically equivalent to dividents
If the stock becomes way too cheap, the company can just get bought out by someone or another company. The value of the company isn't just its liquid assets. If a company makes $20M/year, and the market cap of the company is $50M, then someone can just buy out the whole company and wait a few years to earn back the money for themself by paying dividends to themself (they can do whatever they like because they own the company). Because shareholders know this, they buy the shares, as this does represent ownership of the company.
Also, looking at dividends alone to assess the value of the stock is dumb. Dividends alone are a terrible indicator of value.
I am skeptical of this claim that buying all open market shares means you bought out the company. Response posted from quota regarding this topic: “With the exception of IPO’s in which all stock is distributed, you CAN’T buy all the stock; you can only buy what is held by other investors. Where is the “other” stock? In the corporate treasury. Thus there is “authorized” stock, and “issued” stock. The board of directors may authorize production of ten million shares, of which only 250 thousand are placed on the market. The only practical way around this is the buy the entire company: lock, “stock” and barrel, and then start a stock repurchase program, buying back, in the open market, all shares held by investors.” So I challenge your assumption that simply buying all open market shares will make you take ownership of the company. In reality it doesn’t work this way.
in some cases if you have a controlling/significant share might you hold some voting power or sway over the board? otherwise yeah, as far as the market is concerned, it's just a bunch of people unloading their bags on each other
You also missed share buy backs. It is common practice for companies to buy back shares instead of issuing dividends.
I agree with this. I’d assume the only advantage of having majority stake from a money perspective is to funnel all company profits to your personal bank account. Because what’s the point of spending money to just buy voting power?