Thoughts About Owning Stock
I started thinking recently, “Of what value is a share of stock? I can do nothing with it, other then sell it or borrow against it. It is silly to call myself an “owner,” and other than an occasional dividend, I get absolutely nothing for tying up my money. Sure, if there is a greater fool who will pay more for my share than I paid for it, I can always sell and make a profit. But that hardly seems a sound basis for tying up my money.”
It makes little sense to me, why share prices go up when a company makes more money. The shareholder gets nothing when the company’s earnings increase. Therefore, why are people willing to pay more for that share? Yes, supply and demand. But is the demand even rational? It is not like land, where you can build something or grow something on it, and therefore has intrinsic value.
In the end, are we simply part of a huge tulip bubble? Will people one day “wake up” and say, “What the hell am I doing holding on to these shares that give me no real benefit, just hoping that someone else will pay me more for them than I paid somebody else earlier?”
Of course, one gets a right to vote a share, and one gets a dividend in certain stocks, but my point, to the extent I have one, remains. The entire stock market seems to be a game of the greater fool. We “value” companies and “pretend” that the shareholder owns the company and benefits from an increase in earnings, but in the end, the shareholder really gets no benefit absent a dividend unless somebody else agrees that they are willing to pay more for the share if earnings increase.
Again, just because people have been willing to do so in the past, is that a reason to believe they will continue to do so in the future? And is it even rational to expect people to pay for earnings when they don’t actually get anything as a result of the increased earnings? Its a huge circular argument – well, if the company earns more people will pay more for the company’s shares. That is generally what happens but is it rational for people to behave this way? The effect (increased share price) is assumed to be caused by the increased earnings. But there is no rational reason that I can tell which actually links increased earnings to increased share price, other than this is how people respond to the fact. It just seems (again) that the response is irrational. It would be rational, in my opinion, if an increase in earnings resulted in a direct payment being owed to the shareholder.
– One Diver’s Perspective.
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