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It seems to me that for companies that pay no dividends (and assuming you would have not nearly enough stock to have a vote that matters) there is no value at all in the stock outside of the stock price. The only relevant metric is what other people are willing to pay to buy your stock. Through some mechanism that I can't undertand, the perception of the stock value is still tied to the performance of the company, so it seems like even people going long are still dealing with their predictions of other peoples valuations.

IMO, the fundamentals are the only really important factor in a long term stock purchasing because the rest is mostly just paperwork.

Companies can start to pay dividends even if they have avoided them for a vary long period of time. EX: Microsoft

Companies can also be bought out and have their total stock price + a small premium paid out to their investors.

And finally rather than pay a dividend a stock buy back program can accomplish the same net result with significant tax advantages.

> for companies that pay no dividends ... there is no value at all in the stock outside of the stock price [but] the perception of the stock value is still tied to the performance of the company

Owning a stock is like owning a fraction of a company. The value of stock comes from the following:

(1) dividends (that is, a fraction of current profits)

(2) assets (that is, a fraction of stuff the company has that could be sold; one of Warren Buffett's strategies is to buy companies that have more assets than their total stock price, such that merely liquidating the company would turn a profit.)

(3) estimated future dividends (a company may not presently be paying dividends, but may be on a clear trajectory to profitability and therefore future dividends)

(4) estimated future assets ("growth" type stocks are in companies that are investing profits in assets rather than paying out dividends. This has certain tax advantages over dividend-paying stocks.)

(5) estimated future valuations (that is, guesses as to what others might pay for the stock later)

Notice that only one of these involves perceptions of others' valuations. The rest are a matter of company performance.

For assets (or future assets), you need to discount them by a probability that the investor could ever actually see that money, either via dividends, or via a 'liquidity event' of one sort or another, since an asset isn't really your asset if you can never touch it. Warren Buffet sees to that by buying controlling stakes in companies, so not only do the companies have assets that could theoretically be liquidated for a profit, but he could actually liquidate the company if he wanted to (or at least, could force it to start selling off assets and returning their value as dividends).

It might not be everyone, but I can say for certain that most market participants are NOT value investors.

Where's the evidence?

Centuries of financial crises and speculative contagions seem to be enough evidence for me.

If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically.

Value investors buy assets at a discount to their intrinsic value and they derive that intrinsic value using conservative assumptions on factors such as liquidation value and future cash flows.

If majority of market participants were value investors you would not have had the Dutch Tulip Mania, South Sea Bubble, or more recently the Dot Com Bubble / pre-GFC highs reached in 2006/2007.

If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically

I'd like to see that quantified.

If 60% of investors were value investors and 40% were speculators, would we still get bubbles? I'm thinking yes.

In reality, most people are in the middle. Looking for value, but still mortal, fallible and susceptible to being persuaded that the flavour of the month really is the next big thing.

> If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically.

There is an argument that bubbles are the result of overexpansion of credit. Granting systematic credit is the basic function of central banks.

Not really. Bubbles can easily occur in the absence of credit. I'm not sure how many people were borrowing money in the south seas or tulip bubbles, but probably not that many. Even in the first dot-com bubble (how quaint it sounds to say it now) most of the investing was being done by folks who had money rather than folks who were borrowing it.

The recent housing bubble, on the other hand, yes.

There was a monetary expansion during the tulip bubble (basically New World's gold + laws that made convenient routing that gold to the Netherlands).

The most common explanation given to economic students is theoretical and relevant to basic rationality: * investors who are speculative have no interest to become long-term focused, while * a long-term focused investor who, say, owns a great but over-priced stock has interest in selling it expecting to buy it back afterwards, and then bring it to its long-term value; * similarly, a long-term investor who sees two company would rationally prefer a average but underpriced stock over a great, but already high one if he expects a higher value. Because short term always precedes long, considering speculation is rational for either type of investor.

You can check chapter 10 and 11 of Keynes' General Theory… if you want a very detailed personal account of those.(Keynes was the best speculator of his time, and make Cambridge King's College immensely rich doing so.)

With a daily turnover of 4 trillions just on forex,it seems pretty obvious to me.

http://au.ibtimes.com/articles/110821/20110210/what-is-forei...

I think buying for the long term is a very good thing, but I tend to assume that there aren't many undervalued stocks laying around. Bubbles happen even if there are smart people around who know not to take part, but if there are smart people around its hard for a stock to get too undervalued and I don't care to assume I can do a better job of computing a stocks overall value than professionals do. Sometimes people like Warren Buffet can find gems in the rough, but a large part of that is that they have the resources to swoop in and buy enough stock to sack managers who aren't doing a good job. I can't do that.

I tend to ask myself instead "What do I know that the market doesn't?" I have an engineering education and experience and I can make judgments about a companies products and the long term future of their products that Wall Street investors might not be able to. This is all no guarantee and I keep most of my money in index funds, but its worked out well for me so far.

I don't think the insights offered by TII necessarily disagree with the OP. In fact, I'd say the whole concept of Mr Market chimes in quite well. Both imply a policy of wariness when approaching company values.