From: Dan Fabulich (dfabulich@warpmail.net)
Date: Thu Sep 12 2002 - 15:04:06 MDT
gts wrote:
> Lee Daniel Crocker wrote:
>
> > I agree to the extent that some of the value of a stock represents
> > liquidatable assets of the company: physical things and cash it owns,
> > contracts, and even some intangible things like "goodwill".
>
> Yes.
>
> > But I was trying to answer the original question that started
> > this thread: what value is there in stock /ownership/? The stock's
> > value that represents assets can only be realized by selling the
> stock.
>
> You answered your own question. The value of stock ownership is that one
> can eventually sell the stock for a profit (and possibly earn dividends
> in the meantime).
So, the reason why clarity has been so hard to come by is because the
language in which we discuss this is very vague. In the way Crocker and I
are speaking, saying "The value of ownership is in selling the stock" is a
non-sequitur. If you think it makes sense, then you don't understand the
definition we're using for "the value of ownership."
If I understand correctly (I *have* learned quite a bit from this
thread!), in fact, the value of the owning stock is in the *capacity* to
make dividends, *even if you never actually do so*.
The idea is that if I owned the entire stock of the company, I *could*
take its entire future profits, as dividends, all to myself. Of course,
at any given time, I would (usually) get more dividends later if I instead
had the company reinvest its profits in growing the business.
Now, suppose my desire for collecting larger later dividends has fallen
below my desire to have the cash now. Of course, I could then just start
taking the profits as dividends, liquidate the company, or whatever. But
I could do something else instead. I could find some guy who wants future
dividends more than he wants cash today. In that case, I could just sell
the stock to that guy, *without* collecting dividends or liquidating the
company. I'd get my cash now, and he'd be investing in future dividends.
(Now, obviously, this is in the case of complete information, which
notoriously never happens in the stock market. In fact, the more likely
case is that my desire for the dividends I expect to get has fallen below
my desire to have cash now. The guy buying stock from me may have
considerably higher expectations than I do about the performance of the
firm, which would induce him to buy from me.)
In that respect, the expectations for the future of the firm's dividends
are settled on the market, *even though no one may ever expect to actually
collect them*: whenever anybody thinks they want cash more than future
dividends they expect to get, they'll just sell the stock to somebody else
who wants/expects more future dividends... forever.
-Dan
-unless you love someone-
-nothing else makes any sense-
e.e. cummings
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