From: Dan Fabulich (dfabulich@warpmail.net)
Date: Fri Sep 13 2002 - 14:26:04 MDT
gts wrote:
> Dan,
>
> I missed this statement of yours in your previous message:
>
> > 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.
>
> That is almost but not quite correct. To be correct, you need to replace
> the word "dividends" with either "earnings" or "profits."
>
> Congress could perhaps someday for some inexplicable reason forever ban
> the payment of dividends by public corporations. We could even implement
> the ban as an amendment to the US Constitution. Would the stockmarket
> then grind to a halt? Absolutely not! Prices would change radically, up
> or down depending on whether the given corporation formerly paid a
> dividend, but the market for all stocks would keep on going like the
> Energizer Bunny Rabbit.
True, but only because there would still be other ways for someone who
owns all the stock in a firm to require the firm to hand over their
profits. If there were *no way* to actually acquire the company's cash
profits using the stock, then the stock *would* be worthless.
Dividends are just the most important and obvious way in which the stock
holders can actually collect the firm's profits. There are others, [such
as making yourself an employee,] but they aren't as important (though they
would obviously become important if dividends were banned).
It's the capacity to actual collect (ordinarily through dividends) that
makes the purchase of stock worthwhile, even if that capacity is never
used. Stock prices don't rise by magic when profits/assets go up. They
rise because the stock is more worth owning, which induces people to offer
more for it.
-Dan
-unless you love someone-
-nothing else makes any sense-
e.e. cummings
This archive was generated by hypermail 2.1.5 : Sat Nov 02 2002 - 09:17:01 MST