You're right, at least in a way. At some point, other money has to enter in order for a valuation to make sense. In practice, this happens a few ways: a company starts paying out profits as dividends, it can use profits to buy back shares (which effectively works a lot like a dividend - a transfer of money from the company to its owners), or a company can stop being publicly traded (by being liquidated, sold, or re-privatized).

If a company doesn't do any of these, and never will, there'd be little reason to own their stock (not zero - there's still control and prestige and other marginal benefits - but nothing substantial). That said, it's perfectly reasonable to buy a company that's not currently doing any of these things - as long as there's an expectation that they'll do so later.

If a company is profitable, and they're plowing money back into effective growth (ie. making more money) that is often better for the investors than just paying the money out now. Apple would not be making billions now if it had not re-invested the millions it made in the past. (And now that it has billions of cash and can't effectively spend it all on growth, it's doing more dividends/buybacks).

Of course in reality, a company's valuation is not always terribly rational and things are often definitely overvalued. But in principle the market makes sense and is not a zero sum game. If nothing else, for those who don't trust "growth stock" valuation, there's certainly stocks that do still operate on a "pay out about 7% dividend, year after year, sort of basis".

The article says:

"One could even say that it played a significant role in bringing down the Republic."

The Roman Republic preceded the Roman Empire. The historically literate person is saying that concrete helped in the transition from the Republic - which was controlled by the senate and consuls with limited terms, to the Empire, which was ruled by a single emperor for long stretches.

Concrete helped start the Empire, not end it.

The empire wouldn't end in Rome for another 600 years. It wouldn't end in general for another 1600 or so. It lasted so long, at least partly, because of all its durable buildings and bridges.

We just put a fan on ours, and it stayed up. But yeah, the power supply was the only thing Commodore hardware I ever heard of problems with.

Yes. That's probably what it is. You're probably me in the future.

That's bad news for me, because that means I'm going to lose most of my net worth, start earning well under half what I make now, and become really, really stupid. And I'm not sure how I'll reconcile my experience doing things like "presenting in board meetings of large companies", and "planning acquistions and deciding on company valuation" with what will be my newfound understandings of how these things "really work", that deep understanding that you have based on paying off your house and buying windows and retiring on $500,000. All these revelations I'm about to have will be very disconcerting. Maybe my university will give me a refund on all those economics, business, and accounting courses?

I guess I'll also be 3 or 4 years younger - and I'll also be extremely confident, impervious to reason, and desperately smug about my stupid cynical worldview. So I guess that's cool too.

or by making more and more ludicrous statements which can be more easily dismissed

Yes.. I've said some crazy stupid crap here - that the stock market is a zero sum game, stock prices don't affect executive pay, "the ability to access money.. is 'solvency'", and that stock prices don't reflect earnings.

Oh wait, those were all you. Or maybe you're right about all those things, and it's basic enonomic theory and observable reality that's wrong.

To call the difference between financial earnings and share price "hair splitting" is to say that you have no clue whatsoever what "Earnings Per Share" (a fundamentals analysis benchmark) is, or P/E ratio, or anything about the stock market.

Yep. That's what it is: I don't know what PE is. I had predicted "pathetic attempts at condescension" before, so I'm glad you delivered on that.

No wonder you're so whacked. You actually think stocks reflect earnings.

People usually grow out of their "reflexively contrarian" phase in high school. Again, read the whole conversation again. Look at the stupid crap you've argued for. How could anything I say make you sound dumber?

I'm not providing new fodder for conversation. I'm just going to insult you from here on out. I kind of thought you'd get more angry, so I'm still looking for some of that.

Phew. I thought for a second you weren't going to post a really stupid reply, and I would have hated being wrong about that.

And I don't even have to tell you why this reply is dumb. I mean, just read it yourself again in the context of the conversation. If you can't see that it's hair splitting contrarian wankery, me spelling it out long hand isn't going to help. No thanks; I'm joining the probably very long line of people who can't be bothered to talk to you.

It's cute you think share price controls executive salary, instead of, you know, contracts

God you're confident in your ignorance. But you're not right. Executive compensation (I didn't say "salary", I said "what they get paid") normally varies with performance, and often it's quite public how this works. Look at Intel's arrangement, as an example:

http://www.intc.com/intelProxy...

The other obvious way executives' compensation varies with performance is, as you mention, stock options. Stock options are obviously worth more as share prices go up (and are often, indeed, worth nothing at all unless share prices go up).

You probably think executives are paid too much or something. So do I. But if you can't see something as banal, obvious, and easily verifiable as "share prices control what executives get paid", I just don't know what to say. This isn't like some kind of gray area or something that's hard to grasp, and I can't imagine under what grounds a rational person would dispute that it's true. It's just reality; many, if not most executives will make a lot more money if share prices go up.

I see two possibilities here. You realize I'm right, and maybe that will open some crack of light into your mind that maybe you don't understand things as well as you think you do, that maybe you're not working very hard on comprehension, and you just don't bother to reply. Or, you double down on stupidity and anger and pathetic attempts at condescension and write a really, fantastically stupid response.

I'm betting on the latter. Either way, I'm done. Bye.

We've already been over the other ways money enters the system. I can't explain it clearer than I already have.

People value the market by multiplying the stock spot price by all issued shares--and that's obviously wrong.

Well, it's actually obviously right. Everyone who owns that stock has the option of converting one unit into that amount of money. Why wouldn't they? Because they value that stock at >= the stock price. Otherwise they'd sell for that amount. I mean, sure, some investors are probably asleep at the wheel (and that can be fine as an individual) and have let the value drift above what they would value the stock at, but generally there's going to be enough active traders that the stock price matches what people think the stock is worth. If it was too low, more people would buy. And if it was too high, more people would sell. That's how markets work.

And why do people value things as they do? Clearly it's not coincidence that, say, Rogers Sugar stocks are valued what they are. Investors - in aggregate - figure that, for the amount of risk and potential Rogers Sugar represents, they expect about a 7% return on investment. So their stock ends up being priced such that that's the return you get - the price effectively seeks that value. Again, if people were willing to get less than 7% return from this company, they'd buy more and push the stock price up such that the return was lower. If investors, in aggregate, demanded more return, they'd sell the stock, the price would go down, and the return on investment would go up.

You can only get out exactly what was put in.

Companies grow and become more valuable because they earn more profit. As a shareholder you own a percentage of a company. As that company grows, the value of your investment increases.

So of course you can get out more than you put in.

and the company doesn't owe you anything for that

Well, actually it does. Public companies have obligations to serve the interests of shareholders. If they purposefully betray shareholder interests, shareholders can sue, and this happens reasonably often.

In practice for more day-to-day decisions, shareholders control companies via the board of directors (who shareholders can vote for) - who in turn can select executives. Again, in practice, the shareholders who actually exercise these voting rights are typically large, institutional investors. However, their interests - mainly increasing company profits - are generally aligned with those of smaller investors, so the fact that smaller investors don't normally get involved isn't terribly material.

The third level of control is "voting through investment". If you don't like the decisions of a board or an executive team, you value it lower (either by selling it or not buying it) - and those cumulative investor decisions are felt through changes in share price (which in turn controls who executives are and what they're paid).

Sometimes the connection gets tenuous, and sometimes companies make bad decisions. It's a risk. Some companies are effectively privately held despite being public (eg. Facebook is essentially only subject to Zuckerberg). Again, this is a risk that you consider when investing in these companies.

But shareholders are truly owners, and there are real, effective mechanisms by which they can exert control.

If your argument is "many stocks are overvalued", that's absolutely true. I think Apple is overvalued. So I don't buy it. They make a lot of money right now, but their valuation assumes they're going to make that kind of money long term. I think that's unlikely. Other people disagree. Or they think they can make money anyway, by pawning the stock off on some greater fool. That's not how I like to invest, but you can make money that way.

It does not, however, have the capability to liquidate its assets.

Liquidity is usually a function with parameters are "item type" and "amount", where liquidity tends to decrease as the amount rises. Selling a thousand dollars of Apple shares is unlikely to affect the price. Selling a billion dollars of Apple shares would definitely lower the unit price received. However, in terms of the amounts "normal" investors are dealing with, equities are generally seen as having good liquidity compared to other assets. But if you are investing a lot of money in a small stock, such that your trades are a good percentage of the overall volume, managing liquidity is certainly something you want to consider.

Definitely equities aren't perfectly liquid, but reasonable, non-"penny" stocks (especially on exchanges with professional market makers) are normally liquid enough that an individual investor doesn't have to worry too much about it. Again, it's normally seen as a positive property of stocks as compared to other investment types.

Running a store is different. When you run a store, you are buying product and selling it for a profit margin. Tangible goods and services. You staff people for a certain wage and provide services for a higher hourly surcharge.

Well.. you've clarified your misunderstanding at least.

Say I buy shares in Walmart. Say I buy all of them. I'm now, effectively, a store owner. I could (if the company weren't over statutory maximum size) just re-privatize the business and very little would change. Their costs on staff and stock are my costs. When someone buys a shoe, that's my money. I could shut the whole thing down, or do whatever I wanted. There's not a difference between owning a store and owning stock in a store because they're exactly the same bloody thing. Shares ARE ownership in the business. I wouldn't ever have to sell the company to make money - I'm making money by owning the company and thus receiving their profits.

I can't imagine how this could be any clearer. If I buy a part of Walmart, I'm buying a part of their profit for the period I own that stock. Sometimes I'll obtain this money directly through dividends, other times I'll receive this value through the increase of the real value of the company which I own. Again, we're not just trading baseball cards. Shares have value independent of what they're worth to other investors (that's just what gives them liquidity).

The stock market is like running a store where you sell iPads, but nobody opens and uses the iPads.

You really just don't get this do you? There's two things going on: people are buying and selling ownership of companies.. but people are also buying companies and holding them over time so that they gain the amount of profit the business is making during that period. This is absolutely crystal clear in the case of low growth, dividend bearing stocks, but not that hard to comprehend for other stocks either.

Again... I just don't see how this could be clearer.

Wow that was a bizarre rambling comment.

If Domino Sugar starts flooding the Canadian market with cheap sugar, your little nest egg will suddenly shrink, and you might take a loss or just break even.

I didn't say it was no risk, I said it was low risk. And you agree, I think, in a lot of words. Certainly there's good reason to not have all your eggs in one basket. You buy a little of a lot of things, maybe some with more risks than others. There's no guarantee you won't still crap out somehow, but historically this strategy has done very well, consistently, and it's backed on a very real thing: companies are profitable.

The dividends come from profitability; the stock price is a spot price on the exchange, which is based on public sentiment. You could hold a worthless company taking heavy losses and the stock price is soaring

Well, yeah, there's higher risk options too. Sometimes you might make money by hoping there's a greater fool later on. I'm not claiming the opposite of any of this. You can certainly make money trading stocks day-to-day, though this is largely a zero-sum game where you rely on outthinking the people you're playing against.

However, and this is my point (I have no idea what your point in all this is) you can also make money investing in profitable companies with reasonable valuations, and this is "new money" to the game - you're getting your share of their profit.

That's not money coming from somewhere; it's the ability to access money. The correct term for this is "solvency", and if you yank out the full actual dollars on hand then the bank (or stock market) becomes "insolvent". It's when you have less money being demanded than is actually there, even if there's much more money on paper than in reality

Liquidity is, in general, the ability to turn an asset into cash. If you can't take your asset (the bank account) and turn it into cash, it's not liquid. It doesn't matter why. Maybe the bank is insolvent, maybe the only open once a year, maybe they only let people withdraw 1% of their money a day; I'm talking about the property of liquidity, not why or how the item is liquid or not. Your original point was about how stocks require a buyer to be liquid. My point was that lots of assets have limits on liquidity, and that liquidity isn't usually a problem with stock investment.

So you aren't just being pedantic here, you're really missing the point.

Except dividends are money from outside being put into the market, increasing the money in the market.

Yes.. The money is coming from people paying money to the company to do its productive activities. They're buying iPads and cars and stuff, and you're getting some of that money because you own part of Apple or Honda or whatever.

This is called a zero-sum game. Every stock that's brought in is put there from the outside. Every dollar that's brought in is put there from the outside.

So running a store is also a zero sum game. Because for some reason we're also including money "from the outside" in the sum.

Oh wait, that's really stupid.

When people play poker as a zero sum game, the only money coming in is from the people that are playing. You add up the wins and losses of the players, and it's zero. If you play in Vegas and the house rakes every pot, you're playing a less-than-zero-sum game. If you're playing for a prize on TV, then you're playing a more-than-zero-sum game.

Similarly, when you trade stocks, you're playing a more-than-zero-sum game, because there's an inflow of profit money that's not coming from the "players".