Stock of the Day

Out of context: Reply #476

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  • _niko1

    Question for the stock geniuses on here from a dunce

    If I purchase shares in a company, and that company pays dividends it makes sense. Company profits, I own shares and I get a corresponding piece of that profit.

    But for companies that don't give dividends, why does my stock share have value or why does it fluctiuate?

    Is it strictly for buybacks? or takeovers?

    so if I bought shares for $1 and that company does well and now my shares are $100 and some company swoops in to purchase said company, they'd have to pay their shareholders $100/share (or more)

    which makes sense, but how about a company like apple who are valued so high that takeovers are impossible, what's the end game for investors other than trading it back and forth in perpetuity?

    _niko 1Permalink
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    • Stock prices fluctuate based on supply demand. The end game is to buy/sell in ways that you desire. Dividends are independent of stock price.monospaced
    • If a company buys another company, they don't pay shareholders for the shares they own.monospaced
    • The only way to profit from stock is to sell it at a profit. Dividends are cool, but typically not very significant.monospaced
    • I don't really understand dividends either. They're very low and I have them automatically reinvested into each stock to avoid being taxed.CyBrainX
    • Owning stock in a company just means you own a portion of that company. That's it.nb
    • A dividend is simply when a company decides to distribute some of it's earnings to owners (shareholders) rather than re-investing it back in the companynb
    • *itsnb
    • Ok wait so a company issues stock for cash, they use that cash and the company grows, it makes sense then that if the stock price increases then they_niko
    • Are compelled to buy your stock back and the investor makes a profit. Is that the case? If I own stock in a company they have to buy it back if I want them to?_niko
    • In my mind stocks were traded on an open market amongst investors like trading cards which is where the disconnect was for me_niko
    • But wait, because if the stock value isn’t necessarily the company value, or a company’s cash or assets, there is no way for them to have to buy back shares_niko
    • A stock buy back is a specific thing. They can’t just buy back stock from individuals. You’re selling through a brokerage to other buyers.monospaced
    • You aren’t even buying the stock from the company all. Not unless they give you stock as compensation.monospaced
    • yeah the more I read into not the more absurd it is. It's just like trading cards or crypto, the value of a stock goes up & down on peoples whims and fancies._niko
    • It's not JUST like trading cards or crypto, but you're not way off. The price of the stock is what the market (investors) thinks the company will be worth.nb
    • So, if investors think the company is undervalued, the stock goes up. If they think the company is overvalued, it goes down.nb
    • But it's not just "whims." Investors are usually analyzing some data like maybe annual revenues, market capitalization, performance, etcnb
    • There is some level of "whims" in the stock market, for sure. No one could argue that perception isn't a factor. But it's not just a bunch of nonsense.nb
    • This is why all publicly traded companies have to publish annual reports of how business did and a prospectus on where they think it’s going.monospaced
    • Plus public shareholder meetings and sometimes quarterly reports. This way it’s NOT just a whim. It’s business.monospaced
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