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Comment by dragonwriter | Hacker News Reader

> If you really want to own a stock that gives you no profits, no income from dividends, no voice in how its run, and actually no value what so ever other than the greater fool theory then go ahead.

The fundamental value of a stock is in the claim on the assets at dissolution (dividends are just partial dissolution, and voting rights are just a way for you to have a—very small, for most investors—protected role in having a voice in determining whether the company increases or decreased the value to which you would be entitled if it dissolved.)

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Once upon a time, the fundamental value of a stock was the present value of the entire future dividend stream. Given the two forms of dissolution, acquisition (Yay!) or bankruptcy (Boo!), I'm not sure this is an improvement.

... and what is the fundamentals value? - In the end the value of the parts and hopefully a premium for expectable profits.

There is also liquidation.

There is a third form you are missing -- buybacks.

And having a voice on the act of dissolution itself. Without vote your claim is always dependent on decisions out of your control.

Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)?

I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock. There needs to be some consideration of probability of bankruptcy versus probability of sale (versus probability of no dissolution at all), right?

> Do you mean dissolution due to bankruptcy (i.e. value = the sum value of all assets, like hardware, real estate, etc.) or sale (value = the sale price)?

Any dissolution, in principle, though in a dissolution forced by bankruptcy, there are unlikely to be net assets to distribute to shareholders.

> I know very little about finance, but surely it must be important to distinguish the type of dissolution when using it to calculate the present value of a stock.

Technically, you have to consider all possible dissolutions along with their relative probabilities, since stock isn't a claim on assets restricted to any particular dissolution.

There are many liquidations that pay out significant amounts to shareholders.

Nope.. thats bullshit. If a company dissolves, creditors are first in line and stockholders are last in line. The nuts and bolts or even cash holdings, are often not even factored into stock price. If you did that with apple, its value should be much, much higher. What you buy, when you buy a stock, is earnings (sometimes paid out in dividends) and voting rights.

> Nope.. thats bullshit.

No, it's the fundamental meaning of stock.

> If a company dissolves, creditors are first in line and stockholders are last in line.

Yes, that priority is accurate, and part of what sets (and limits) the value of stock, as is the priority between different classes of stock, where they exist.

> What you buy, when you buy a stock, is earnings (sometimes paid out in dividends) and voting rights.

Earnings are just increase in dissolution value, and dividends are just a partial dissolution.

It's hard for people to get their head around this but you are exactly right. A company has value tied into their market value and accumulated assets even if they pledge to never pay dividends. Berkshire Hathaway is a notable example here. Stock trading is a way to make this value liquid before any actual dissolution event.

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