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Suppose you give money to a company in return for a share of stock. The company does spectacularly, becoming bigger than Amazon and Brazil, combined! (That was a joke.)

The company, however, never pays a dividend. Eventually, the world changes and the company makes a few missteps, and then one day, bang! The company is bankrupt and your share is worthless.

Now, you could argue that you made money when you sold the share, but the guy who bought it didn't. Without dividends, the stock market is a zero-sum game. In fact, it's the world's biggest Ponzi scheme, with money coming in from new investors being used only to pay out to past investors.




> Eventually, the world changes and the company makes a few missteps, and then one day, bang!

That's not how bankruptcy works.

Kodak, Sears, K-Mart have proven that it (typically) takes years, maybe even decades, for a dying company to go bankrupt.

> The company is bankrupt and your share is worthless.

That's also not how bankruptcy works. Your factory equipment will be sold to the highest bidder, and your shareholders will be given the money that was left-over (after bondholders and suppliers are paid).

> Without dividends, the stock market is a zero-sum game.

Also a false assertion. The stock's price is most commonly tied to the equipment, land, and other resources a company holds.

If the equipment, land, and resources "suddenly" become worthless, then yes, the company is worthless. But in practice, land, equipment, and resources have real value. And that real value, is often above-and-beyond the cash value of those resources.

Tesla paid $5 Billion for the Gigafactory 1. I think it was a bad purchase, but the shareholders own the Gigafactory. I would never buy Tesla shares, because I think Tesla overpaid for their equipment, the land, and the workers at that site.

Tesla was ONLY able to buy the Gigafactory 1 because a pool of investors brought together $2+ Billion in 2014 (a secondary offering). The bond market handled the rest of the debts needed to build the factory.

As long as the Gigafactory 1 makes more than $5 billion over time, then Tesla will be a good buy for its shareholders and its managers.

(Unfortunately, Gigafactory 1 was a bad buy for Tesla and Panasonic. But that's another topic....). Most importantly, Tesla shareholders own a stake in that factory (and every other piece of Tesla). If it weren't for Wall Street organizing things, the Gigafactory 1 would never exist.

That's the power of the market: to conjure up $5 Billion out of nothing but the hopes-and-dreams of millions of investors, to hopefully make a factory that will hopefully make enough cars to be profitable.

And guess what? If Tesla goes bankrupt, those investors are happy that Tesla tried. So the market is very far away from a "Zero Sum" game. Go and ask any Tesla investor if you don't believe me. The vast majority are bought into this "changing the world" story, and are willing to lose money over it.


some of the individual tesla stockholders might be bought into the "changing the world" story. but i don't think it's the 'vast majority' as you claim.

plus most of tesla is owned by institutional money: pension funds, sovereign wealth funds, mutual funds. i can guarantee that money very much cares about economic outcome.

most tesla shareholders are NOT the fanboys as you claim.


Haha can confirm, am happy to lose money on TSLA, given what they've already done.


Yup, its a bit annoying when I argue against them, but its a point-of-view that I've begrudgingly accepted. In any case, its a "correct" way of thinking, especially when a company is still doing a lot of secondary offerings and needs the money (like Tesla).

Factories won't build themselves. It doesn't matter if you're Google / Facebook buying servers, Tesla building factories, O buying houses, or even Disney's entirely virtual intellectual property (Marvel / Mickey Mouse / ownership of cartoon characters + movie characters). Shares are a share of the company. Owners of those shares are literally the owners of the servers, factories, or houses (or other "assets") that these companies own.

To build new assets usually requires money, and that money was provided at some time by an IPO raising money for a company. That's what a share fundamentally is.


"Your factory equipment will be sold to the highest bidder, and your shareholders will be given the money that was left-over (after bondholders and suppliers are paid)."

dragontamer

""If a shareholder sees a company they own shares in has filed Chapter 7, it is near certain they’ll receive nothing," [Lynn M. LoPucki, a professor at the UCLA School of Law and the founder of the UCLA-LoPucki Bankruptcy Database] said. "If they see a company has filed Chapter 11, it's highly probable they will receive nothing.""

https://www.finra.org/investors/what-corporate-bankruptcy-me...

"Although a company may emerge from [Chapter 11] bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company's plan of reorganization will cancel the existing equity shares. This happens in bankruptcy cases because secured and unsecured creditors are paid from the company's assets before common stockholders. And in situations where shareholders do participate in the plan, their shares are usually subject to substantial dilution."

https://www.sec.gov/reportspubs/investor-publications/invest...

"Also a false assertion. The stock's price is most commonly tied to the equipment, land, and other resources a company holds."

dragontamer

No. No, no, no. When you buy any financial instrument, you are giving someone money now in exchange for a (hopefully larger)[1] sum of money to be returned to you later.

The majority of the millions of Tesla investors can believe anything they want, but I'll guarantee you that Baillie Gifford & Co, Capitol World Investors, the Public Investment Fund, Vanguard, Blackrock and the other 926 institutional investors that own 56.27% of TSLA shares (https://www.nasdaq.com/symbol/tsla/ownership-summary) do so because they expect to get more money out of the company than they put in.

You will find some investors define the "value" of a share of stock to be the net present value of the sum of the portion of future earnings the share represents. That's wrong; it's actually the net present value of the dividend stream plus any residual paid to shareholders when the company is wound up. (And yes, I've actually owned shares in companies that paid out on being finalized; I'd recommend against it as it confuses the daylights out of your broker's account tracking stuff. It took years to get the 0-value shares off my holdings list. The one interesting thing you will notice is that when a company announces the intention to do that, their share price immediately moves to be somewhere near their distribution value divided by the number of outstanding shares.) You will find exactly no one serious who defines the value of a stock to the company's book value, for any company that is a going concern. (Special situation investor note: if you find a company whose shares are worth much less than their book value per share (minus "intangible" parts of the book value, which are worthless), you may have found a good investment. Cough, cough, GME.)

The bottom line is that if you give money to a company in, say, an IPO, and that company never pays a dividend, they will eventually go out of business and you will get approximately nothing. You will have made a bad investment. The only hope for you, personally, is to sell your shares to some greater idiot and let them ride the shares down to worthlessness. That is very much a zero-sum game: any money you gain selling your share is lost by someone else. (Wait---the initial investment. It's actually a negative sum game.)

[1] Insurance is a special case. That I'm not getting into here.




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