Share price's relation to company's financials?

[brainstorm]

I think it would help this thread to note what money actually represents, i.e. labor hours. Yes, different kinds of labor cost different amounts per hour, but essentially what money is exchanged for is human labor. Even when the purchase is a commodity, the commodity is not given any of the money but rather the people involved with the re-distribution of the commodities ownership.

So, a good way to look at stock-investment is that you have a certain amount of human labor (other than your own) that is yours to direct as you wish. If you had a farm, you could direct the labor-hours to perform farm labor, for example, at your will. If you wanted people to weed, they would weed. If you wanted them to plant, they would plant.

However, since you don't want to manage the labor-hours you are entitled to, you can invest them in someone else's direction. When you buy apple stock, you are basically pledging a certain amount of labor-hours to the managers of apple to direct as they see fit. Your hope, of course, is that they exchange the labor-hours you give them for even more so that you can get even more for what you put in. It is a little like feeding the grain you have to your workers in hopes that the workers will make babies and you end up with more workers than you started with, which will eventually result in even more grain being produced, etc.

So, in fact, buying shares is not completely useless if you don't make money off them. You also provided people with some money (fiscal stimulus) to continue spending. The question is whether the labor they perform for the money you gave them ends up having a positive effect on the world or a negative one. Similarly, when they spend the money you invested in them, does the labor they buy have a positive or negative effect?

Granted, the global economy is so vast that it is difficult to trace the effects of labor exchanges but if you were, say, investing directly in farm workers, you would see that if you directed them to till and plant and weed, they would have these skills; whereas if you directed them to dance and sing, you would get entertainment and skilled artists with very poorly skilled agricultural capacities. Then they would probably tell you that you should get some other people to do farm labor so they would be able to buy food with the money they made by singing and dancing. You would do this because you would have no other way to get back the money you paid them to sing and dance. Congratulations, you went from being a broadway producer to a farmer/grower!

 

[loseyourname]

So when is Berkshire Hathaway going to start paying dividends?

The dividend method is just one way to arrive at a fundamental stock value. In the absence of dividends and the absence of any future expectation of dividends, you can find the fundamental value of the firm instead (value of non-operating assets plus present value of all future free cash flows), subtract the market value of all debt, and divide by the number of shares outstanding. That gives you the theoretical price you should be willing to pay for a share.

 

[mgb_phys]

The dividend method is just one way to arrive at a fundamental stock value. In the absence of dividends and the absence of any future expectation of dividends, you can find the fundamental value of the firm instead (value of non-operating assets plus present value of all future free cash flows), subtract the market value of all debt, and divide by the number of shares outstanding. That gives you the theoretical price you should be willing to pay for a share.

Indeed - a large pile of gold doesn't pay dividends, but isn't worthless!

 

[brainstorm]

Indeed - a large pile of gold doesn't pay dividends, but isn't worthless!

Gold is only worth what it can be exchanged for, or used for. A subsistence farmer won't trade food for gold if it means going hungry.