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Comment by JohnPrine | Hacker News Reader

I don't quite understand. Suppose a company has a bank account with $1000. I own shares equating to 25% of the company, worth $250. The company has a good quarter and the bank account grows to $2000, but it doesn't pay a dividend.

How should the growth of the bank account affect the price of my shares? Under the model of stock pricing you described, the price wouldn't increase and it would take a fool to buy them from me for more than $250. But the bank account of which I own 25% of the shares has doubled in value, so it wouldn't make sense to me that the share price wouldn't change.

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What's the of value owning a bank account you can't take a withdrawal from?

Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?

What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value? What rights and privileges are granted over your bank by owning a portion of this account?

> What assets and performance metrics do you have backing this account worth $100000? From what are you deriving its value?

I'm a multi-millionaire and successful businessman, but what does that matter? You can't take the money out regardless if it's backed by anything or not.

> What rights and privileges are granted over your bank by owning a portion of this account?

You get to vote in a meaningless election.

If you granted me ownership of the account and then denied me access, I could take you to court. Stock ownership is a legal agreement. If the leadership of the corporation doesn't act in the shareholders' best interest, they'll be replaced with someone who does.

Stock markets have worked for 400 years. Don't you think that makes it less likely that they're ponzi schemes?

> If you granted me ownership of the account and then denied me access, I could take you to court. Stock ownership is a legal agreement.

Legal agreements can take many forms, and the legal agreement for the account says no withdrawals ever. When you have ownership of a share of stock, you're also denied access to the underlying assets. If you buy one share of Microsoft, can you take them to court to demand access to that share's worth of assets?

> demand access to that share's worth of assets?

if you owed me some money, can i chop up a part of your kidney to sell?

the ridiculous notion that you are entitled to use or own an asset directly partially just because you own the shares partially is a misunderstanding of the legal structure of share ownership.

You do not own any assets of the underlying company of the shares you hold. You merely own the company itself.

It's like trying to claim a piece of america (or your country) because you are a citizen of that country.

While I, and I'm sure several others have appreciated your point, it's lost on the person you're responding to. It's a fruitless endeavor. They clearly have no understanding of economics or investment finance.

The difference is that these companies actually have real assets, and holding stock legally grants you fractional ownership over them. Your hypothetical is more like an Enron situation where shareholders are told that there are assets behind their stock that really don't exist. That's why the stock price plunged when the fraud was revealed, and why my net worth doesn't budge when you grant me the account.

As a thought experiment, do you think that your ownership of a company is also meaningless if there are only 2 shareholders? What about 3 shareholders? At what point does breaking a company up into fractional shares become a ponzi scheme?

> The difference is that these companies actually have real assets, and holding stock legally grants you fractional ownership over them.

So? How valuable is "legal ownership" over an asset if that doesn't actually entitle you to anything besides a certificate of ownership?

In practical terms, non-dividend-paying stock actually looks a lot like an NFT, unless you've amassed enough voting control to actually matter.

Genuine questions, what does legal fractional ownership entitle you to do?

it entitles you to sell that legal fractional ownership to someone else.

If your fraction is high enough, you could have full legal control. But since it's very dispersed, there would be a discount on the value of that legal ownership.

But the fact that you still own it is worth something, and that is exactly what the share price is indicating.

> At what point does breaking a company up into fractional shares become a ponzi scheme?

Depends on what being a shareholder entitles me to do. If I can't vote and don't have a realistic expectation of getting dividends and have no other rights, then yess, that "ownership" seems pretty meaningless to me even if there are only two shareholders.

If you have voting rights, you can give an actual answer to the question: At the point were the fractions are small enough that the vote doesn't have any practical influence anymore.

> What's the of value owning a bank account you can't take a withdrawal from?

… at the moment.

Microsoft didn't pay didn't dividends… until they did. Apple paid dividends, stopped, then started again. If you knew about where they'd go, would you object to buying them before they started paying out?

Amazon hasn't ever paid dividends, but would you object to owning AMZN? Especially if you purchased it in (say) 2011.

Total Returns = Capital Appreciation (CA) + Dividends (D)

For most people saving for retirement is the primary thing that they're putting away money for. For that you want the biggest pile of money you can get for when you hit 65 (or whenever). Whether you can get pile with just CA (like with AMZN), or with CA+D, is irrelevant at the end of the day.

It's not that dividends are not important—they can be a (big) component of TR—but fetishizing them like there's no other way to build your retirement pile is short sighted.

AMZN may eventually pay out dividends, but until then you can own a piece of a company growing by creating value, and be part of the ride of rising value (represented, loosely, by a rising stock price).

> you can't take a withdrawal from?

you could, but other shareholders might not want it withdrawn. So you have to argue and hash it out with other shareholders.

So the currency being held by the company is not worth exactly the same as currency held in your own bank account (of which you have full control over).

But it doesn't mean those currency is worthless.

> Just now, with this comment, I've started a "bank" and I'm granting you. JohnPrine, an account with a balance of $1,000,000. However, the terms are you can never, ever withdraw or transfer that money under any circumstance. How much does this new account add to your net worth?

But tragically, the IRS will tax JohnPrine on that "income" of $1M he can never get his hands on.

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