Yes. Buying growth at a loss is so over.
A stock is worth the present value of future dividends.
A more accurate thing to say would be that a stock is worth the present value of the future earnings the company generates divided by the number of outstanding shares.
Since the future is unknowable, a stock price is hence derived from the expectation of future earnings.
Hasn't this always been the case?
Genuinely curious.
Yes, but think the poster was implying the increase in interest rates makes it worth less.
$100 in 10 years is worth $91 today at 1% but $53 at 6%. That has a big affect on the valuation of growth companies.
AFAIK this used to be true in the olden days. For the last few decades, many tech companies have turned little to no profit and yet trade at insanely high premiums given the fundamentals because most people have FOMO and pay for the expectation that maybe one day $money_loser will make money and be worth what they paid.
Outside of tech, I don’t think this is the case though. It’s valuing stocks by that axiom. But in tech, all bets are off.
The only new factor is the amount of “free” money on the market. In the past it was minimal ( more or less ), now it’s maximal after a decade of zero interest rates and trillions of paper printed.
This exacerbated some aspects of the market but the fundamentals remain the same.
Not every stock pays dividends. A stock's worth is determined by supply and demand in a market or directly between the seller and the prospective purchaser.
2. As an investor, you can't control when and how you're taxed. Dividends are taxable when they are paid out. A company stock buyback, on the other hand, would increase the value of your shares and let you sell when you're ready.
[1] Discounting stocks like REITs which are required to return profit in the form of dividends.
Same could be said about stock buybacks. In principle they're the same, only one has better tax characteristics.
> Rather than investing into itself.
Why would a mature business continue to invest into itself perpetually? What's in it for the investor?
These are actually worth quite a lot. But you do make a good point, particularly when it comes to companies like Facebook, who don't pay dividends but have dual class structures so management can't be ousted. I don't know why regulators allow these companies to be floated like that, they're pretty much the antithesis of what public companies are supposed to be. If Zuck's metaverse bet fails (which I anticipate it will), and he doesn't pull another rabbit out of the hat, I expect we're going to see a lot more institutional investors complaining about dual class structures in the next few years.
> A stock is worth the present value of future dividends
1 and 2 are a restating of that. 3 is another way of returning money, but the money still has to be there.
Is this even possible?
“No one” cares about dividends since they are taxed like income and after corporate buy backs going the route next year I wonder what Wall Street will come up with..
That's a tautology. It's like saying the price is the price.
That's silly. Your quote was incomplete and selective.
If one accepts that the worth of something is the price that supply and demand establish, there is no room for workers being underpaid (or overpaid), according to this model. They are paid exactly what the market determines (so what they are worth). Of course this is extremely simplistic, but you get the idea.
Funny, however, how this often touted as self-evident does not stop people from saying x profession earns too much, while the same time advocating for the market as the ultimate solution to all our problems.
What I am saying is that under the market model supply and demand determine the worth of something. Under that logic, nothing can be overvalued or undervalued. Of course that model is too simplistic.
The price is whatever the market pays. That's the definition, nobody disagrees.
The value is a different question. As you point out.
In our time, claiming those are the same (or even that they are meaningfully related) borders on fanaticism.
Yes there are other methods for distributing profits (stock buy backs) but unless you're saying it's a massive Ponzi scheme, then the value has to come from something real.
To bastardise buffet. I'd much rather everyone else gorge themselves on hotdogs so I can have my favourite burger restaurant to myself. When they come to their senses I will have to pay more for my burgers, if I can even get a seat in the restaurant.
'gainz' are only 'gainz' when you come to sell, and I have more confidence that something that I bought at current inherent value will maintain that value when I want to sell, compared to something with no inherent value.