You don't just own the right to vote and the right to dividends. You own a peice of the assets of that corporation. If the corporation liquidates, then assets are split amongst shareholders, generally preffered stock holders first.

So, the higher the assets of the corporation (or higher percieved chance of the corporation's assets increasing) the higher the stock value, as the stock is a peice of the assets.

procyon112 said:You don't just own the right to vote and the right to dividends. You own a peice of the assets of that corporation. If the corporation liquidates, then assets are split amongst shareholders, generally preffered stock holders first.

So, the higher the assets of the corporation (or higher percieved chance of the corporation's assets increasing) the higher the stock value, as the stock is a piece of the assets.Tell me, when was the last time a public company actually liquidated and a shareholder recovered? The closest thing to this ever happening seems to be when a company is bought out by another company. Its a fairly rare occurrence relative to my stock portfolio. Its happened but not often.

The professor in my investments class yesterday brought up an interesting point: the growth of domestic equities is largely tied to real growth in US GDP, and it is very difficult for a developed nation to sustain real GDP increases of more than ~3%/year over the long term.

This calls into question investing in domestic equities with the aim of seeing large capital gains, and we've seen large investors (the Harvard endowment and the Hewlett Foundation, to name two case studies we recently covered) scale back their domestic equity allocations over the past several years.

David, I agree with you completely. Good post. I'm glad I'm not the only one who thinks about the philosophical meanings of investment from time to time.

You own a piece of the company. When you own 100 shares in a 9 billion dollar operation it may seem a bit abstract, but nonetheless you are an owner. said:You own a piece of the company. When you own 100 shares in a 9 billion dollar operation it may seem a bit abstract, but nonetheless you are an owner.

To this point, I agree and disagree. When you own just $700k or what not of a company- you really have no say and as much as you think you may be electing someone to the board to make decisions, I highly doubt that. In my opinion, the little guys have NO say or CLAIM to a companies assets.

OP, while I pretty much agree with you, I understand why your thread gets negative. People are desperate to try to profit with their capital. The institutional investors know this and motivate the sheeple to pour as much as possible into this monster we call the market that has expected returns slightly higher than any casino in Las Vegas. The people who are redding you all have large stakes through retirement or personal portfolios.

They believe Dennis Hopper and that TD Ameritrade guy who says you are on your way to riches if you just send 15-25% of your earnings their way. Like the Charles Schwab shill says, "Yeah, I've done well, but I want to do better." That is the nature of greed. You MUST make your money work for you. The problem is that a retail investor has a general negative return because they tend to buy high and sell low which is just the opposite of your objective. Now many will get mad and say that's only idiots doing that, but I'd bet over half of the people 55 years or older have lost money if they have increased or more likely reduced their stock holdings this year.

The Dave Ramsey, mythical 12% return just isn't there for outsiders. Don't forget that performing companies are added to the indices and losers are culled. How does this impact the long-term performance charts? I'm no expert, but I am convinced that retail investors play to their egos when "playing the stock market". Long-term steady investment and divestment which results in dollar cost averaging does seem to be an effective means to maximize the retail investor's returns, but as I asked in this thread, very few people seem to have even reasonable results and most seem unwilling to admit that their strategies are far from optimal and in fact, are worse than dollar cost averaging the indices.

Ask any 60 YO with a large 401k how much they lost in 2000, how long it took them to make it up and what their allocation is now. Here's your answers:
1. I lost 40-60% (depending on how aggressive they were)
2. It took me 5-6 years to make it back up
3. I'm still 70%+ in equities because I don't have enough to comfortably retire yet.

When you hear these answers, you'll be looking at a sheep in a stanchion. If this hits a little too close to home, be sure to give me some red.

delzy said:False. The board is stacked by the majority shareholder(s). You have absolutely no say in the operations and cashflows of the company. You, my friend, are a sucker for even considering that you participate in the election of management.

Even then, consider that you and your pissant holding peers, as a class, are keeping other potential majority shareholders from becomming majority shareholders. Those people are willing to pay going value for your shares, so your shares are worth that value.

Share Buy Back programs.

Basically when a company does well, the company grows. Their treasury grows. If they don't have any use for the money, such as acquisitions, R&D, etc, there will be great demand by the share holders to distribute the excess money. This can be done by increasing dividend, special dividends (as in the case of Microsoft), or share buy back. As the company buys shares and nullifies them, it increases value to all the existing shareholders.

Nice post, davidscubadiver.

I agree that stocks are just pieces of paper of which the values are questionable. But again, then what's special about "money" by which the value of stocks are measured. It's again another piece of green paper with some old dead guy's picture on it. If you worry about not being able to redeem your stock into cash because no one might buy your stock tomorrow, you should worry with the same degree that tomorrow you might not use your green paper to buy a chicken at the supermarket. Airline miles, CashBack points, pieces of arts are no different from stocks or green papers.

Given that no one wants to keep tons of chickens and bread in their kitchen, it's in everyone's interest to keep this weird switching going on at some relative price between each object until they expect the government to increase the volume of the green papers to the extent that people start asking ten times as many papers for a chicken, which has happened many times in history such as in Germany with hyperinflation, or even recently in Zimbabwe.

In theory, the stock market is one of the most powerful forces for democracy in the world. In a Communist society, the state owns the means of production. In a capitalist, stock-driven society, the companies generate value, and the people can actually own a chunk of the company through stock purchase. The ability to not simply own a part of the productive machinery, but to have a choice of which one, and the ability to buy it or sell it according to whether it's performing per your expectations... yes, we all take it for granted, but it's incredibly powerful.

That said, there is a very serious disconnect today. When Mozilo gets megabucks for helming a company that looks like a shareholder suit waiting to happen, when senior management runs a company for their own benefit and ignored shareholder equity, there's a problem.