EPTTrading/Investing Thread - Page 14
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KwarK
United States41989 Posts
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RvB
Netherlands6191 Posts
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Shuffleblade
Sweden1903 Posts
On February 20 2020 23:22 KwarK wrote: Tech companies never pay dividends, giving money back to investors instead of reinvesting it implies that you’ve run out of ideas and see no more potential for innovation and growth. Utilities etc are dividend stocks because nobody is looking for them to invent a new market for “electricity 2” and promote it to new consumers. Amazon is never going to say “aight guys, nothing left to do with your investment, take it back” which is what giving money back says. They just grow the underlying assets of the company of which the share represents a share. You give yourself a dividend whenever you want by selling a portion of your holdings. Thanks for explaining that to me, however that is so insanely stupid I have a hard time wrapping my head around it. What you are basically telling me is that shares in tech companies isn't worth anything, it has the same value as antiquities, collectibles, they hold value because people are willing to collect them. Either hoping its value will increase or for the hobby of collecting them. If I own 10% of all Amazon shares that will gain me nothing, I could own them for 10 years and it will gain me nothing. It doesn't matter if the company grew it revenue or not, I still would gain nothing unless other people are willing to pay more for the shares than what I paid for them. Logically though there is no reason for the value to increase because no matter how big or successful the company gets no money goes back to the shareholders. The shares in themselves aren't worth anything, its like a huge ass aircastle were everyone has fooled themselves into believing it has value while it really doesn't. The moment the economy turns sour the value of these shares will hit rock bottom because they have no innate value which blows my mind. If a company like that quadruples its earnings in a year there still ain't any reason for the value of its shares to go up because no matter how small or big the company is it never pays anything to its shareholders. I guess the shares holds value if rich people wants to buy themselves the control of a company but that is pretty much it. The system relies on the stockmarket to go up forever and there really is no reason for that to be the case. Edit: The reason shares "should" hold value is because you own a part of a company and therefore you should get that same part of its profit. You own a part of a company and if it makes profit you get a part of it, if that is not true anymore the shares are close useless logically. | ||
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Vivax
21799 Posts
We'll see what wealth is when a majority stops working. | ||
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IgnE
United States7681 Posts
On February 21 2020 01:24 Shuffleblade wrote: Thanks for explaining that to me, however that is so insanely stupid I have a hard time wrapping my head around it. What you are basically telling me is that shares in tech companies isn't worth anything, it has the same value as antiquities, collectibles, they hold value because people are willing to collect them. Either hoping its value will increase or for the hobby of collecting them. If I own 10% of all Amazon shares that will gain me nothing, I could own them for 10 years and it will gain me nothing. It doesn't matter if the company grew it revenue or not, I still would gain nothing unless other people are willing to pay more for the shares than what I paid for them. Logically though there is no reason for the value to increase because no matter how big or successful the company gets no money goes back to the shareholders. The shares in themselves aren't worth anything, its like a huge ass aircastle were everyone has fooled themselves into believing it has value while it really doesn't. The moment the economy turns sour the value of these shares will hit rock bottom because they have no innate value which blows my mind. If a company like that quadruples its earnings in a year there still ain't any reason for the value of its shares to go up because no matter how small or big the company is it never pays anything to its shareholders. I guess the shares holds value if rich people wants to buy themselves the control of a company but that is pretty much it. The system relies on the stockmarket to go up forever and there really is no reason for that to be the case. Edit: The reason shares "should" hold value is because you own a part of a company and therefore you should get that same part of its profit. You own a part of a company and if it makes profit you get a part of it, if that is not true anymore the shares are close useless logically. its a combination of the time value of money and a game of hot potato. at the end of a company’s life span, as a company is starting to contract, it still has assets, even if those assets are a fraction of the total stock price at some earlier point in time. one is willing to buy stock at higher price at a definite point in time, and that is functionally a bet that the company will continue to grow its assets. | ||
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Sbrubbles
Brazil5775 Posts
On February 21 2020 01:24 Shuffleblade wrote: Thanks for explaining that to me, however that is so insanely stupid I have a hard time wrapping my head around it. What you are basically telling me is that shares in tech companies isn't worth anything, it has the same value as antiquities, collectibles, they hold value because people are willing to collect them. Either hoping its value will increase or for the hobby of collecting them. If I own 10% of all Amazon shares that will gain me nothing, I could own them for 10 years and it will gain me nothing. It doesn't matter if the company grew it revenue or not, I still would gain nothing unless other people are willing to pay more for the shares than what I paid for them. Logically though there is no reason for the value to increase because no matter how big or successful the company gets no money goes back to the shareholders. The shares in themselves aren't worth anything, its like a huge ass aircastle were everyone has fooled themselves into believing it has value while it really doesn't. The moment the economy turns sour the value of these shares will hit rock bottom because they have no innate value which blows my mind. If a company like that quadruples its earnings in a year there still ain't any reason for the value of its shares to go up because no matter how small or big the company is it never pays anything to its shareholders. I guess the shares holds value if rich people wants to buy themselves the control of a company but that is pretty much it. The system relies on the stockmarket to go up forever and there really is no reason for that to be the case. Edit: The reason shares "should" hold value is because you own a part of a company and therefore you should get that same part of its profit. You own a part of a company and if it makes profit you get a part of it, if that is not true anymore the shares are close useless logically. What you don't seem to understand is that it doesn't matter whether a company is paying out dividends or not. What matters is that it could, if it wanted to (aka the company is profitable). By not paying dividends, it's saying: I won't give you your share of the profits today, but (tomorrow, next year, someday) I will give you even more of your money's worth, because I have some even better investments opportunities in my pocket. Whether or not this day comes is besides the point. | ||
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CorsairHero
Canada9489 Posts
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CorsairHero
Canada9489 Posts
On February 20 2020 17:10 Vivax wrote: That's probably what he pays for a few dinners. He might've been asked to set an example. 25 million is laughable compared to what he manages. Buffett even recommends a 90/10 equity index / bond allocation in his letter to shareholders | ||
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Shuffleblade
Sweden1903 Posts
On February 21 2020 02:40 IgnE wrote: its a combination of the time value of money and a game of hot potato. at the end of a company’s life span, as a company is starting to contract, it still has assets, even if those assets are a fraction of the total stock price at some earlier point in time. one is willing to buy stock at higher price at a definite point in time, and that is functionally a bet that the company will continue to grow its assets. So you are saying that when companies reach "the end of its lifespan", in other words liquidation, either forced or voluntary you believe owner of shares will get at least as much money back as they paid for the share? I think that is basically unheard of. Sure a company still has assets but if it gets forced into liquidation or chooses it voluntarily chances are there will also be debts and I don't think the shareholders can expect a lot of money back. It doesn't matter how big a company is, if its forced into liquidation then there will very rarely be much money left for the shareholders. On February 21 2020 03:48 Sbrubbles wrote: What you don't seem to understand is that it doesn't matter whether a company is paying out dividends or not. What matters is that it could, if it wanted to (aka the company is profitable). By not paying dividends, it's saying: I won't give you your share of the profits today, but (tomorrow, next year, someday) I will give you even more of your money's worth, because I have some even better investments opportunities in my pocket. Whether or not this day comes is besides the point. What you don't seem to understand is that yes it does. What you are writing is utter gibberish, we are talking about investment here pure economics. How about you loan me 100€ with 0 interest and then I pay you back sometime, maybe, what matters is that I can pay you back if I want to right? If that day ever comes is besides the point..... I promise you its a good deal, if you ever change you mind you can just sell the promissory note to someone else anyway. I'm sure someone would buy a promissory note that promises that I owe money, have money and can pay back when I feel like it. Obviously this is how the system works, how the real world works but that doesn't mean that it makes sense. It is stupid and illogical that people invest as much money as they do for no payback. This whole system of stocks that are successful and earn a shit ton of money but doesn't pay dividends reminds me of pyramid schemes. The share in itself holds very little value, the only real value is the capital per share with for example AMD is valued at 57 dollars atm, its capital per share is 2 dollars. If you buy their stock you only make money if you can fool someone else into buying it for even more money, in the end the last person that bought it when the market falls back to its actual real value of 2 dollars is the loser. The earlier you buy but still fool others to keep buying for higher prices the more money you earn, the later in the process you buy the less you earn but the last person is the sucker. Maybe I am a skeptic because I don't believe the stock market can just grow forever, something will happen and imagine for a second if the market would keep falling steadily for a year. Which shares would investors still be willing to buy and which shares will fall all the way to the floor, I guess when it comes to that companies can start paying dividends to prove their worth but as long as they don't they are only worth their actual capital. | ||
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KwarK
United States41989 Posts
On February 21 2020 01:24 Shuffleblade wrote: Thanks for explaining that to me, however that is so insanely stupid I have a hard time wrapping my head around it. What you are basically telling me is that shares in tech companies isn't worth anything, it has the same value as antiquities, collectibles, they hold value because people are willing to collect them. Either hoping its value will increase or for the hobby of collecting them. If I own 10% of all Amazon shares that will gain me nothing, I could own them for 10 years and it will gain me nothing. It doesn't matter if the company grew it revenue or not, I still would gain nothing unless other people are willing to pay more for the shares than what I paid for them. Logically though there is no reason for the value to increase because no matter how big or successful the company gets no money goes back to the shareholders. The shares in themselves aren't worth anything, its like a huge ass aircastle were everyone has fooled themselves into believing it has value while it really doesn't. The moment the economy turns sour the value of these shares will hit rock bottom because they have no innate value which blows my mind. If a company like that quadruples its earnings in a year there still ain't any reason for the value of its shares to go up because no matter how small or big the company is it never pays anything to its shareholders. I guess the shares holds value if rich people wants to buy themselves the control of a company but that is pretty much it. The system relies on the stockmarket to go up forever and there really is no reason for that to be the case. Edit: The reason shares "should" hold value is because you own a part of a company and therefore you should get that same part of its profit. You own a part of a company and if it makes profit you get a part of it, if that is not true anymore the shares are close useless logically. The shares have value because the net assets of the company has value and the shareholders control those assets through the board. A share of Amazon isn’t just a curiousity to show the grandkids, it’s ownership. Take your hypothetical, Amazon never pays out dividends and just keeps all the cash in an account. Your share represents a share of that cash, you can always find someone to resell it to because the cash exists. Now let’s say confidence in the market collapses and people demand their money back. They can do that, the shareholders can vote to liquidate Amazon if they so wish. The profit exists and you own a part of it, whether they give you cash or keep the cash. | ||
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KwarK
United States41989 Posts
On February 21 2020 01:20 RvB wrote: That's not true. Many tech companies such as Apple, Microsoft and Cisco pay dividends. Some tech stocks which don't pay out dividends such as google return money to shareholders by buying back stock instead. Microsoft is a dinosaur. The point relates to high growth tech companies (Amazon, Facebook, and so forth) and the stigma against returning cash when there is opportunity for reinvestment and continued growth. You’re right that that stock buybacks are materially identical to a dividend, it’s all about perception. | ||
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IgnE
United States7681 Posts
On February 21 2020 04:13 Shuffleblade wrote: So you are saying that when companies reach "the end of its lifespan", in other words liquidation, either forced or voluntary you believe owner of shares will get at least as much money back as they paid for the share? I think that is basically unheard of. Sure a company still has assets but if it gets forced into liquidation or chooses it voluntarily chances are there will also be debts and I don't think the shareholders can expect a lot of money back. It doesn't matter how big a company is, if its forced into liquidation then there will very rarely be much money left for the shareholders. No I am not saying that. That looks like a willful misreading of what I said | ||
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cha0
Canada501 Posts
On February 21 2020 04:27 KwarK wrote: Microsoft is a dinosaur. The point relates to high growth tech companies (Amazon, Facebook, and so forth) and the stigma against returning cash when there is opportunity for reinvestment and continued growth. You’re right that that stock buybacks are materially identical to a dividend, it’s all about perception. AMD has been around longer than Microsoft... Also AMD's direct primary competitors Intel and Nvidia both pay dividends. I do agree with your points that some high growth tech companies like to pursue reinvesment over dividends, but it really comes down to the senior management currently in charge and has nothing to do with the sector. Amazon is the most successful extreme growth story as they have and continue to keep profits low by putting almost all earnings into expansion and R&D. Edit: Just to clarify and expand on this, I personally don't care or want AMD to give out a dividend. They are currently in position to take a large bite into Nvidia and Intel's marketshare and money spent better positioning themselves for this right now is better spent in my opinion. | ||
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Sbrubbles
Brazil5775 Posts
On February 21 2020 04:13 Shuffleblade wrote: What you are writing is utter gibberish, we are talking about investment here pure economics. How about you loan me 100€ with 0 interest and then I pay you back sometime, maybe, what matters is that I can pay you back if I want to right? If that day ever comes is besides the point..... I promise you its a good deal, if you ever change you mind you can just sell the promissory note to someone else anyway. I'm sure someone would buy a promissory note that promises that I owe money, have money and can pay back when I feel like it. Lending money is totally different from owning a company. It has predefined rules on how money will be paid back. Owning a company does not entitle you to a fixed ammount of return. A company is an entity created to maximize shareholder value and it has no obligation to send those returns to you by dividends instead of by increased value of your share. Different countries and different companies have different rules about paying dividends, but for the sake of argument let's assume they are not legally bound to. On February 21 2020 04:13 Shuffleblade wrote: Obviously this is how the system works, how the real world works but that doesn't mean that it makes sense. It is stupid and illogical that people invest as much money as they do for no payback. This whole system of stocks that are successful and earn a shit ton of money but doesn't pay dividends reminds me of pyramid schemes. The share in itself holds very little value, the only real value is the capital per share with for example AMD is valued at 57 dollars atm, its capital per share is 2 dollars. If you buy their stock you only make money if you can fool someone else into buying it for even more money, in the end the last person that bought it when the market falls back to its actual real value of 2 dollars is the loser. The earlier you buy but still fool others to keep buying for higher prices the more money you earn, the later in the process you buy the less you earn but the last person is the sucker. In a hypothetical world with interest rate of 2%, receiving 100 dollars today or 724 dollars in a hundred years have the same present value, and a company will chose to pay 100 dollars in dividends will be worth the same as a company that promisses to invest at this interest rate and return your money in 100 years (ignoring risk). This is why I'm saying it doesn't matter WHEN the company will pay dividends, what matters is that your returns are accruing, that the company is profitable. There is no necessary pyramid scheme here. Bubbles happen, but they depend on collective overvaluation of company profitability, not on an uninformed investor being available to be suckered in. On February 21 2020 04:13 Shuffleblade wrote: Maybe I am a skeptic because I don't believe the stock market can just grow forever, something will happen and imagine for a second if the market would keep falling steadily for a year. Which shares would investors still be willing to buy and which shares will fall all the way to the floor, I guess when it comes to that companies can start paying dividends to prove their worth but as long as they don't they are only worth their actual capital. Companies have balance sheet which they can point to to prove their worth, but yeah, even in a hypothetical world of Shuffleblades, they could just pay out dividends then issue more shares to get this money back and invest what they would have invested anyway if they didn't need to pay out dividends. | ||
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Shuffleblade
Sweden1903 Posts
On February 21 2020 04:25 KwarK wrote: The shares have value because the net assets of the company has value and the shareholders control those assets through the board. A share of Amazon isn’t just a curiousity to show the grandkids, it’s ownership. Take your hypothetical, Amazon never pays out dividends and just keeps all the cash in an account. Your share represents a share of that cash, you can always find someone to resell it to because the cash exists. Now let’s say confidence in the market collapses and people demand their money back. They can do that, the shareholders can vote to liquidate Amazon if they so wish. The profit exists and you own a part of it, whether they give you cash or keep the cash. Yeah all that checks out, you are right but if you think about it owning something doesn't mean anything if you can't use it. Consider owning land on the moon, yes that is great, if someone wants to buy that land from you then you can turn it into money otherwise its only a paper. Or until humanity expands so far that you can build a house on your land on the moon. Owning money doesn't matter if you can't use the money, we are so used to being able to use anything we own that its hard for us to think like that but it is true. You can hope you can always find someone that is willing to buy money they cant use but it is not for sure because money you cant use isn't really money is it. In regards to net assets, as I have written previously, take AMD as an example they have tangible book value per share of 2 dollars, lets be very generous and also count AMD total net profit per share which is below 0.3 dollars. A share in AMD cost 57 dollars, yes the company can cover that with 2 dollars in assets and 0.3 dollars in profit. How come the company is worth well above 20 times its assets and profits? It is not, sure you can argue there "is" something of value there in owning the share but it is so vanishingly small when compared to the price of the share that it doesn't work as an argument. Are you really trying to tell me that I am wrong and it does make sense to buy a share for 57 dollars since it has assets and profit of 2.3 dollars per share that can be liquidated and return to me in case of stock plummet? Next lets follow your example of Amazon, yes I own the stock for 5 years, get no dividend, then the market goes south and the value plummets back to the value I bought it for (or less). It so happens that the value of the Amazon share in 2014 was more than the total of its current profit and assets put together. Which means that even if Amazon liquidates all its assets and return all its profits to the shareholders I would still lose money. This is even if the people as you so funnily put it make the board pay out to the shareholders. Lets be real, minority shareholders have no power over the actual company. The majority owners would never agree to liquidity the company when its value has fallen that low, they will earn a lot more money to try and rebuild the company. So sure you own money on paper but if you can get that money or not is not up to you. Imagine I bought Amazon 350 dollars in 2014, Amazon assets today are worth 125 dollars per share and their net profit per share is 23 dollars. Amazon can't even cover half its own value back in 2014, today the share is worth over 2000 dollars. You can argue with me as much as you want that the share actual has value and it is true, it does hold value but if you look at the economics of it the actual value is miniscule compared to what it is traded for. Its a big aircastle that might continue on for years and years but its still an aircastle, as long as someone buys it from you you're safe you made money but as soon as someone doesn't you are absolutely screwed because the company assets and profit dont cover even 10% of the shares perceived value on the market today. Edit: Just to clarify I don't want dividends, I don't care what companies to they do them I do me. To me the whole system just seems so bloated I have a hard time understanding it. The companies actual value doesn't cover 10% of its perceived value and when looking at for example Amazon, even after 5 years of crazy growth they still arent worth enough to cover half their value in 2014. If you people really think the companies are worth the amount of money they are being traded for... I just don't see how you can justify it, how you can believe that. Look at amazon, not paying dividends and putting all their money into expanding and increasing their assets yet they don't even have half of their own value 5 years ago? | ||
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KwarK
United States41989 Posts
The implicit assumption in Amazon’s value is that after exterminating all competition they’ll probably monopolize everything and enslave the human race. It might not happen and it might not be as bad as all that but they’re doing their best to achieve that. So you take the value of Amazon’s future dystopian slave world, adjust it for the probability that they fail to completely achieve their goals, discount that to present day dollars and that’s your value. | ||
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Shuffleblade
Sweden1903 Posts
On February 21 2020 05:34 KwarK wrote: You’re not distinguishing between the intrinsic value and the estimated value of future cash flows. A share doesn’t just give ownership of net assets, it also entitles the holder to a portion of future net assets when those are earned. That’s why valuations exceed net current assets. Shareholders have the option to butcher the company for parts but they also have the option to keep running it for cash flows. Those future cash flows are adjusted for risk, time value, and so forth and converted into current share value. The implicit assumption in Amazon’s value is that after exterminating all competition they’ll probably monopolize everything and enslave the human race. It might not happen and it might not be as bad as all that but they’re doing their best to achieve that. So you take the value of Amazon’s future dystopian slave world, adjust it for the probability that they fail to completely achieve their goals, discount that to present day dollars and that’s your value. Yes, I agree and I do take that into consideration. That is why I used Amazon as an example. I bought it 2014 and 5-6 years later its actual as you put it intrinsic value is not even half of what I paid when I bought it for 2014. What you are telling me is that if I bought Amazon stock in 2014 I should hope that in the faraway future (2025 maybe?) the company will be worth what I paid for it. What the numbers are telling me is that 5 years of Amazon expanding has not even made it close to be worth half what its share was priced at 2014. Sure it might be worth more 5-100 years but that doesn't change the fact that it is overvalued. What I am saying is that it is incredibly overvalued, especially when you compare it to shares to do pay dividends because if a share pays out 5% dividend every year but stay at the same value on the stockmarket you are making actual tangible money and if the company is stable and not directly effected by a crisis when a market fall happens the share wont fall much because it has value. 5% back every year is clear money back on investment, a higher bloated value on the stockmarket that can just plummet at any time is not. Sorry for coming in here and crashing your investment party with my crazy way of defining value :p | ||
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KwarK
United States41989 Posts
I understand your valuation methodology, the problem is the market disagrees with it. | ||
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cha0
Canada501 Posts
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Glacierz
United States1244 Posts
The way these companies are valued are based on their intangible assets such as their unique business models and IP leading to high growth potential. For Amazon, the market is pricing its ability to gradually take over the retail sector and monopolizing it. In order to do that, it will need to re-invest any profit it makes back into the business to crush its competition. If there comes a time when Amazon becomes the sole player in online retail and the likes of Bestbuy/Ebay etc are all gone, it would have saturated the market and have no more need to grow. That's when you'd expect earnings to become predictable, and it will start to pay dividends or perform share buybacks. The E/P ratio would stabilize and it will trade more like MSFT and become a value investment. A lot of people on this forum lack basic knowledge of how to read/think about company financials. Most will benefit a lot from some basic classes on financial accounting before analyzing stock valuations. | ||
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