I’ve never really understood why the “buy and hold” investment crowd invests in stocks that don’t pay a dividend, or have a realistic expectation of paying one in the future.
I’m probably not smart enough to get it but it seems to me the only reason you would own a company would be to make money. So if you are a buy and hold person, you will get paid while holding the stock through dividend.
The only reason you would buy a stock that doesn’t pay a dividend is on the assumption that some day IT WILL. So companies that are rapidly expanding market share (earnings)…I can see owning, at a price related to profits. But I don’t trust any corporate disclosures, so even the P/E ratios to me are suspect.
I have no faith in the system. There are too many Enrons and Countrywides and Citibanks, and Bank of Americas, and Goldman Sachs, and Lehman Brothers, etc. out there. And too many companies growing from a guy in a trailer to billions in only a few years by cooking the books. Seems like the insiders do what they need to do to pump up the price and mislead investors so they can cash out their options.
It doesn’t seem likely that companies can expand infinitely. So there is no reason for a comany to continuously recycle profits into further investment. At some point a company has to reach market maturity. But most of the stock market seems to be full of rosy outlooks and assumptions of continual expansion of market share. And people bid up the P/E on speculation.
I understand that a share in a company is owning a small portion of the net asset value plus the current income stream and discounted future income stream. I think if stocks were traded based only on the assumption that price should be share of overall net assets plus current income, they would in general be trading much lower. If you could even trust the disclosures regarding true asset value and current earnings.
To my simple mind the game seems to mostly be about future income speculation.
