Quote:
Insisting that stocks must have dividends to have intrinsic value is vaguely analogous to insisting that a dollar must be exchangeable for a prescribed amount of gold.

I don't think that that analogy is entirely correct.

My argument is that any monetary item, whether it be currency, bearer bonds, stocks, gold, diamonds, or whatever else, must be tradable for some real value. As I argue this more and more, I realize why real estate is called real estate. The only other things of real value I can think of are labor and food. (And when you get down to brass tacks, food is really just the combination of land and labor. But sometimes you need it now.) I'm more than happy to add art into that category, too, although I suppose that could be considered as a form of labor.

I don't believe that currency necessarily needs to have a fixed value. There are a huge variety of variables involved. But it does need to be tradable for one of those few ultimately valuable things. The basic notion is that, in a capitalistic world, if you do something for me, I do something for you. If you plow my fields, I'll let you keep some of the food. But as society becomes more complex, the tit-for-tat might not be coincident, so you need an IOU, which is essentially what currency is, once you allow the notion that I can sell the potential service or good that you were going to give me to someone else in order to get him to do something for me. It's just an easier way to keep track of "Andy plows Bob's fields; Bob builds Chuck's house; and Chuck makes Andy's shoes." And then, at some point, it progresses to the point where Dave has an IOU for barrel making and Earl has an IOU for lumberjacking and they both need what the other has, so they trade, without either one having done any work or provided any goods.

(I've regressed to the fiduciary precambrian here.)

So, to skip ahead 5000 years, when I give a company my IOU, it's with the expectation that they give me either labor, goods, or another IOU in return. In the stock market, what they give you is the notion of partial ownership. And if the company doesn't pay dividends (the equivalent of making you a new pair of shoes, or at least an IOU for new shoes, every year), then you don't get anything else back besides the partial ownership. You cannot do anything with that partial ownership besides point to it. The company will never do any work for you, they will never give you any goods, and they will never give you an IOU.

But, you argue, you can sell that partial ownership (which will never produce anything for you) to someone else, and he'll give you a good, service, or IOU for it. Which I am not denying. Certainly people will do this. And they will do it because someone else will do it for them. But they're just passing around this partial ownership that will never produce any good or labor or IOU on its own. Which makes me wonder why anyone wants to buy it.

And as you all point out, because someone else will buy it. But it all seems like the Emperor's New Clothes to me. Everyone just arbitrarily agrees that it's worth something. (And they make an interesting game out of what that worth is attached to.) But it has become completely disconnected from what made things worth something those 5000 years ago.

On IRC, Tony was making a comparison between stocks and certificates of deposit, nearly equating them. His argument (and I apologize if I've misinterpreted) is that in both cases, you give money to someone else, time elapses, then you get more money in return. (Well, in the case of the stock, you hope you get more money.) But the problem with that argument is that, while that's true for the individual investor, it's not true once you look at the system as a whole. The CD's system is incredibly simple. Investor pays company some amount of money, time passes, company pays back money, plus interest, to investor. And the system is finished. The CD no longer exists. In the case of the stock, investor 1 pays money to company, time passes, investor 2 pays money to investor 1, time passes, investor 3 pays money to investor 2 ... investor n pays money to investor n-1. It's an infinite loop. If any of you computer scientists out there turned this algorithm into your employer as the basis for a multi-billion dollar organization, you'd get fired.

In my mind, what this all means is that someone's going to be left holding the bag -- I mean hot potato -- I mean stock certificate -- when whatever the Ctrl-C equivalent is happens. I guess part of the risk, in addition to the question of if the company's assets will appreciate, is the question of when the crash will happen. And I guess I see all of those options as dickish.

Of course, that's way off my initial point, which is, if it is all based on an infinite loop with the only possible outcome being collapse, where does the value come from? Actually, even that's not my initial point. It's really more along the lines of, if the company never gives any proceeds to the stockholder, why is the stock value associated with the value of the company?

I know I've gone off on a dozen tangents, and I know you're all frustrated with my apparent denseness, but I can assure you that I'm not being dense (well, other than ignoring dividends, and I see how I'm being dense there). I'm equally as frustrated with all the arguments that are looking at what I see as a tiny subset of the whole system and the apparent refusal to look at the whole thing. At this point, I don't know if I'm trying to convince you that it's a huge case of the Emperor's New Clothes, or if I'm really hoping that someone can show me why anyone would find worth in something that will never produce anything of value.

If someone would just come out and say that it's the ultimate hope of every stockholder that every stock they invest in will one day pay large dividends, then that would make sense to me, even if each stockholder is only trading it based on that potential gain. Otherwise, it's just trading baseball cards, but without all the cool pictures of the players or the bubblegum.
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Bitt Faulk