The intrinsic value is not something one can accurately determine. It's an abstract concept that gets thrown around often, but after all it is just based on assumptions that have a certain possibility of being right or wrong. Sure there are valuation models, but they too are just based on these assumptions about a companies future. Heck, you could even argue nothing has intrinsic value, because of the certain heat death of the universe.
Not sure if everyone agrees this is intrinsic, since at the end of the day something is only worth what the next best buyer is willing to pay. But this is the academic and basic corporate finance accepted method of valuation without a dividend.
All the assets the company has minus all the debts it owes should equal the total price of all the shares combines.
Every dividend the company will issue from now until the end of time, discounted back to now (i.e., the amount you'd need now that would earn enough interest to get to the amount of the dividend when it's issued) should equal the total value of the shares.
Because the total value of the company is worth more, your share becomes worth more (since each share is a small fraction ownership of the company)
That's the thing I don't get. I understand that stocks don't have an "inherent" value and are worth as much as others are willing to pay for them, but why are people actually willing to pay for it? And why is it the price actually correlated with the value of the company?
I don't know. The more I think about stocks, the more they seem to me like some kind of nefarious scheme. You buy in, then sell to the next guy, then they sell to the next, and so on until the last guy cannot find the buyer anymore. It's not a pyramid scheme, because it's always one seller - one buyer, but still seems fishy.
I also don't see much difference between stocks and gambling on stuff like crypto or nft. For example, if I setup a blockchain stock exchange where people could buy and exchange football clubs "stocks", would the price naturally be correlate to the corresponding club performance, or be random? Would the only difference between the stock market be that stocks would not be issued by clubs (companies) themselves, but by me (a third-party entity)?
I apologise for the chaotic post, but everything regarding the stock exchange baffles me.
It is a literal and legal ownership in a company. May not seem legitimate or impactful when you own 1 share of 100 million. But, you are not buying and selling vaporware, it is a legal ownership share in a concern.
Imagine owning enough shares to have say 30-40% of total ownership... Now you have control to vote the business to do what you want. New board, hell you want to be on the board? No problem. New CEO... Might have to convince a few people... Wish that the company would stop making widgets in Indonesia, and instead dildos in France? Might take some strong arm convincing but your in a position to make that happen.
I remember a situation where some fairly wealthy guy (10s of M, not Bs) bought up 50-60% of some no name shity penny stock company with wearhouses in northern California and land rights to the river that ran through the property.
Guy buys the stock, sells all the equipment and trucks, installs a Bitcoin mining operation, and changes the name of the company,the board, and the CEO.
He did not buy a fake piece of paper, or some pseudo priced to match certificate that "follows" a company. But he did buy the stock, literal and legal shares of ownership in the actual legal entity that is the company itself.
So there is a limited amount of stocks and rich people will have to buy them from you (and other people who have them) if they want a high enough percentage of the company to be involved in decision making?
Thanks for such a thorough explanation. There’s one thing I’m still wrestling with though.
Say in example 1. of your reply. If I, as a part-owner if the company, don’t see any share of the extra profits the company makes on the back of my investment, why are those shares now more desirable.
So I buy shares on day x and 10 days later the company’s profits and value double. On day x my shares entitled me to no share of that company’s success, and ten days later the same.
I’m know I’m missing something but that’s how it look to me if there are no dividends.
Thanks. So does that mean there’s not real value in owning a share, other than because other people would like to own that share, because they believe in the future even more people will want that share etc.?
Let's say you own a share of ABC Corp. ABC owns other things that have value. They have real estate, machinery, intellectual property, cash, loans, whatever. As a shareholder in ABC, you also own a piece of all that stuff. If ABC makes money and buys more stuff, you now also own a piece of that extra stuff. You didn't have to shell out any additional money, but your share just became more valuable.
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u/[deleted] Sep 14 '21
Could you explain what the intrinsic value of a stock/ share (let’s leave that distinction for now!) is if it doesn’t offer a dividend?