Investing Catechism

Quote from nitro:

Ok,

I have one more thing to add.

This whole thing of bonus compensation and executuve pay and for talent retention. Want to solve it simply? CEOs etc get a base salary, a good salary at that. The bonuses however gets payed through the same dividend that you or I get if we are shareholders.
SHOW ME THE BEEF
More...

That would never work.
CEO's are employees not owners. Yes, some can be both but the bonuses they recieve has everything to do with their work as employee not owner. You both win in a normal bonus compensation situation. The employee benifited the company, thus making it worth more value, which means your stock is worth more value in the long run. Employee gets a bonus from the retained earnings, which keeps the talent at the company and provides incentive for future hard work. Obviously not all situations are "normal." and some ceos get compensated even though they did not benefit the company, which I think needs to end.
 
You are wrong. The owners of the company are the first short sellers. If they sell their stocks, why should I buy it? Ask them they will say, we are cashing out.

If you remove the dividend stocks, I will not be surprised that you will see stock go up, and heading back BELOW their initial price, because we know that the initial sellers did not lose and someone has to pay them.

After IPO the stock is a hot potato.
 
Quote from nitro:


1.The reason the market goes higher is not because there is intrinsic value to an investor ONCE a company goes public. It is through a magical little thing called, drum roll, the 401K. Money comes into the market and gets put into play, PERIOD. No ifs ands ors buts whys who when where.

2.Otherwise, all the indices would trade very close to book value, and hence would most stocks follow.

3.Warren Buffet quit investing for years because stock prices didn't reflect value. He later "missed out" on the biggest tech boom in history. You are making my point, you realize.
More...

A few more things to address:

1. How do you explain a company opening much higher after great earnings were announced or some positive news event happened? How do you explain the broad market opening much higher one day because of some economic news? That has nothing to do with 401 k in flows.

2. Why would indices and the companies it tracks trade close to book value when they have earning potential. If you had a metal box that magically produced money, would you sell it for the amount you could scrap it for?

3. Yeah, and he also "missed out" on the biggest tech bust in history. I can't honestly tell if you are being sarcastic here, but either way you are right buffet determined that stocks didnt reflect value. but value means assets (book value) PLUS retained earnings.
 
Quote from nitro:

I must not be making myself clear. Why do you as an investor care that AMZN has every single dollar in the Universe in earnings, and everyone on the planet owns AMZN, and the stock price is at 1,000,000? How does that translate into you making money unless the company pays out a dividend?
More...

You are lacking the notion of time in your definition of dividend. You seem to refer to dividend as dividend at current time. There are also future dividends. The market as whole is saying there would be some future dividends, but I think they are overpriced as always (both in the amounts and whens). If there certainty that there will be no future dividends, a stock price should be ZERO.

So it is the future dividends, not the future earnings as others have written before, that matter.

So one can think of current stock price as the price of a bond with zero coupon of some (uncertain) future cash flows (uncertain in time and amounts).

So your statement is correct in the sense that it is not earnings but dividends that matter.

Most likely at a certain point in the future, re-invested earnings will meet an accident of some sort (strategy, law suits, misconduct, etc), and a good part will be lost. The company may turn to loss, and it will live on its past earnings, and the price of stock will head back to zero.

That is why the price of a stock is meaningful only when we can see the cash flow from dividends at present time, as you correctly pointed out.
 
Quote from Jesus:

Some of you guys obviously have absolutely no idea how the stock market works or what it is. I realize that this is a trading forum, but it doesn't look like some of you guys know a thing about investing. You need to go to economics 101.
More...

I agree, but I like to think that many of the comments are made at least partially in jest. Surely, many of the posters are aware that stock markets found fair value of companies before there was a 401(k) system, and indeed do so in the 99% of countries that have no 401(k) equivalent. Wouldn't you think?
 
Quote from nitro:

Please explain something to me. Today as an example, AMZN is up 25% because earnings obliterated analyst estimates.

What I don't understand is, who cares from an investor point of view? Break it down for me: how does the fact that AMZN made all that money, relate into money in my own pocket as an investor? People will say, well, the company has more money, so it can acquire other companies which will lead to even more revenues, and it can buy more books, update it's computers, hire more programmers, etc etc etc. But how does any of that translate into money in my pocket if I am an investor in AMZN? Unless I share in that profit, why would I ever care? Is the value of the higher earnings only that I know you care because you are an idiot, so I will be an idiot with you and anticipate that you are going to buy the stock, and I buy the stock too, hoping to sell it to an even bigger idiot later? Is it all an illusion?

To me, the only thing that matters as an investor is the dividend because ultimately, unless I work for AMZN, it is the only tangible way I can profit from AMZN doing well. And yet, investors bid up the stock of AMZN as if it was money they were making :confused: People say, dividends are double taxed, blah blah blah. That's why companies don't pay more dividends. Well, yeah, but it is real!

I must be missing something.
More...

I just read this, and the dividend point I raised in previous point is now at heart of your question.

You would agree that zero coupon bond with higher cash flows (everything else equal) is more expensive than one with lower cash flows.

So assuming that AMZN will pay dividends in the future, after the earnings report, the estimates of the future dividends (not earnings) increased, and therefore the price increased just like in a zero coupon bond case.

I would however not invest in stocks with no today dividends and positive earnings, because a bird in hand is better than two in a bush in an uncertain future time.
 
What dividend? So all these idiots are buying AMZN for what reason again?

http://www.dividendinvestor.com/ter...historyamazoncominc.php?symbol=amzn&submit=GO

Quote from riskfreetrading:

I just read this, and the dividend point I raised in previous point is now at heart of your question.

You would agree that zero coupon bond with higher cash flows (everything else equal) is more expensive than one with lower cash flows.

So assuming that AMZN will pay dividends in the future, after the earnings report, the estimates of the future dividends (not earnings) increased, and therefore the price increased just like in a zero coupon bond case.

I would however not invest in stocks with no today dividends and positive earnings, because a bird in hand is better than two in a bush in an uncertain future time.
More...
 
Quote from BigFunky:

I agree, but I like to think that many of the comments are made at least partially in jest. Surely, many of the posters are aware that stock markets found fair value of companies before there was a 401(k) system, and indeed do so in the 99% of countries that have no 401(k) equivalent. Wouldn't you think?
More...

In 1978, Congress amended the Internal Revenue Code by adding section 401(k), whereby employees are not taxed on income they choose to receive as deferred compensation rather than direct compensation.[4] The law went into effect on January 1, 1980,[4] and by 1983 almost half of large firms were either offering a 401(k) plan or considering doing so...
More...

http://en.wikipedia.org/wiki/401(k)

"Stock market" [unfortunately the SP didn't exist in 1900] performance. Notice anything unusual around 1982?

http://stockcharts.com/charts/historical/djia1900.html

Too bad I can't find a chart of DJIA book value. If someone can post it that would be great. Having both the value of the DJIA and the book value on one chart would be even better.
 
Nitro, I have to find the article I read before.
It is about Walter Schloss. He look for price/to book value, little debt, and managers who own much of the stock.
So this is how he see future growth of stock price.
 
You must log in or register to reply here.
Back
Top