What i am baffled with is, if the actual value of a particular stock lies in its resale and not in its dividends then what is it that gives stocks thier intrinsic value.
2006-07-28 01:28:42 · 6 answers · asked by MarxVsFromm 2 in Social Science ➔ Economics
What you look for in a stock is a rate of return, which is a combination of the dividend (set once you buy the stock, unless the Board changes it, as GM's did earlier this year) and the anticipted rise in market value.
Ironically, after GM cut its dividend, its value went up. Common shares have appreciated nearly 70% so far this year - the reason is cash. Cash is king to an investor. The more cash a company has, the better it can weather any storm.
The point is to have an investment with an expected rate of return greater than what you get elsewhere. Even if the dividend is small (usually 1%), that alone can often beat a savings account (now, after 14 rate increases, do they approach 1%).
If you don't have a risk tolerance for the market, I suggest either a high-yeld savings account or money market account, or perhaps a TreasuryDirect account.
2006-07-28 01:56:06 · answer #1 · answered by Veritatum17 6 · 0⤊ 0⤋
People and institutions don't buy stock anymore for the dividends, but because of the anticipation (or blind hope) of increases in stock price. This anticipation is only remotely connected to P/E or assets or anything else tangible. Ultimately, it is driven by emotional factors of the investor or fund manager, and this can be manipulated by a company's PR, or by rumors, etc.
That's why the stock market is a gamble. Not gambling like throwing dice, but more like playing poker. Winning depends on the luck of the cards, but over the long run those with information and skill win more than the others.
This is why Wall Street and the Republicans want to get Social Security and other retirement money invested in the stock market, and managed by the workers (total amateurs in the stock market). It's a professional gamblers paradise to have beginners throwing huge amounts of money into the pot.
2006-07-28 21:01:45 · answer #2 · answered by jim n 4 · 0⤊ 0⤋
Stock price = function (P/E, dividends, industry, growth potential, innovation and R&D, prob of a takeover, ROI, EBITAD, debts, etc). This is the technical stuff.
The REAL stock price is emotional Texas Hold-Em!
The more marketing by Analysts, the higher the trading activity on the stock, the higher the stock price. This is the soft component.
Be prepared to loose everything when you own a stock. Else buy some good government bonds or hold real assets (not paper stuff).
2006-07-28 15:25:31 · answer #3 · answered by r 3 · 0⤊ 0⤋
Your question is interesting, but why apply your logic just to stocks? Does gold pay dividends? No. Do people value it highly? Yes. Does my house pay dividends? No. Is it worth a lot of money? Yes. Practically EVERYTHING we value does not pay dividends. Now in the case of a company that does not pay dividends, I can think of LOTS of reasons why it might be valued highly. Perhaps it has valuable assets (including technology) that other companies want and will pay lots of money to acquire. Perhaps it will pay dividends in the future.
2006-07-28 17:41:18 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Excessive P/E ratios (or dividend to price ratios) are caused by rampant speculation, driven by excessive M3 expansion.
It is a giant ponzi scheme. Wrap your mind around my source linked below.
2006-07-28 10:48:38 · answer #5 · answered by Shelby M 1 · 0⤊ 0⤋
Anticipation of further growth, for those who are in for the long term.
2006-07-28 12:02:28 · answer #6 · answered by lighthouse 4 · 0⤊ 0⤋