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Why Is it in Investors Interest To Hold Equities
- Thread starter tommo
- Start date
Quote from tommo:
If the answer is, they invest in equities because everyone assumes as the economy grows the shares go up that seems more of a self fullfilling prophecy than any economic reason?
there is also one more reason that tends to tie the share price to the company performance, a company that is doing very well and is with tons cash might announce to buyback its own shares at anytime which is a synthetic dividend to its shareholders
Quote from Don Bright:
Earnings, dividends, future expectations ( a big one, as with the dot.com days and China, LOL) all affect the pricing.
I believe that is very important ... because for example say a company earns 10% net first year ... 12% net second year ... because the third year everyone expects a net 13% you would expect the stock to go up only 13% but it usually goes up like 30-40%
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let's go back to our first company ... say our company finds a bank that gives exactly 10% interest annually and puts the million dollar in there ... (assuming there are no taxes and no expenses) ... we would always be sure that 1 million would turn into 1.1M first year and 1.21M second year and so on ... but in real life even though everyone was sure the return is constantly 10% ... the company stocks probably would not go up even 10% because there was no hope for any possible advancement
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what I am trying to get at is what you said ... future expectations ... is what helps people be willing to bet at even higher prices
what do you say?
here is an article regarding Price to Book Ratio:
http://seekingalpha.com/article/46590-are-stocks-with-a-high-price-to-book-ratio-worth-buying
http://seekingalpha.com/article/46590-are-stocks-with-a-high-price-to-book-ratio-worth-buying