February 1, 2017

Value of stocks without dividends

It seems to me that the real "value" of stocks is quite weak. You "own" part of a company, but what advantage does that actually give you?

* Voting rights [irrelevant unless you're a huge player]
* A pay out if the company is sold [irrelevant unless the company is sold]
* A share in the company's success (dividends) [most stocks do not provide this]

This leads me to think that dividends are the main thing that really gives value to stock and ties stock prices to the health and wealth of a company - a more successful company can pay higher dividends.

Now, the interesting thing is that most companies don't pay dividends. Why do people still own these stocks? Well, for capital appreciation... that is the fancy term for "other people will pay you more for the stocks in the future because they hope someone else will pay them yet more, and so on". I guess the ultimate rationale fueling this is (or ought to be) that there will be huge dividend payouts eventually - when the company is finished growing - that make the long wait worthwhile.

But something about that makes me uncomfortable... isn't it awfully reliant on investory psychology (ie. speculative)? Aren't many of these companies going to squander all their success or take it for themselves, leaving little behind for the patient shareholders? Won't the ones who are holding the ball at the end eventually be the losers - from them come the gains of those before them, not from the company itself.

One has to wonder at the stock of a company like Google becomes worthless. A ton of money is invested in them but does not pay dividends. What if everyone found out that they would never pay a dividend? Then its value would have little grounding in reality... it would be entirely speculative.

TL;DR: Are stocks wrongly valued because of investor psychology?

are the rich 'lucky'

if you consider luck being born rich, yes.

if you consider luck being born in a first world country, yes.

if you consider get a product/service stuck long enough to turn a profit, yes.

if you were born poor, if you were born in a third world shithole, your chances are nought.

if you create something worth buying/using, you need luck to keep your users. but it is likely some chink will produce your design and beat you manufacturing it (see the autism block that was on the news yesterday, or the selfie stick case). 
if you design a service or some game for example, you will have clones by the millions if it gets any attention, and it is likely a clone will rob your success (see candycrush)

buy lottery tickets. you have as much chance in getting rich if you are poor.