latesaver wrote: ↑Sun Mar 21, 2021 7:54 pm
Scooter57 wrote: ↑Sat Mar 20, 2021 3:58 pm
That could happen. It may be happening now, as there is less and less relationship of the prices of stocks dominating the market to the earnings of the companies issuing the stock. Many stocks, like Amazon or Tesla
offer stockholders neither dividends or the possibility of profiting from receiving a portion of the proceeds of the sale of the company in the future company. Whatever the company's earnings. You aren't promised any share of it. Only the hope that the hype that surrounds the company will allow you to sell your stock to someone willing to pay a lot more. Any company with negative earnings (i.e. ones losing money) or with Price/earnings ratios up near 100 or in the case of Tesla 1000 is being traded on principles that have nothing to do with the old fashioned concept that when you buy a stock you are an owner and entitled to a share of the company's earnings.
why is the bolded excerpt relevant?
have you ever looked at a chart of the broad US equity market (S&P 500, etc.) over the last 40+ years? i wouldn't say i am gambling blind investing regularly over years and years into low cost index funds...
The bolded phrase is relevant because the whole idea behind companies issuing shares of their enterprise, and investors buying those shares, going back to the 1600s, is that owning shares allows you to share in the company's profits. The two ways you can do this is by getting a piece of the company's profits that is proportional to your share of ownership--dividends--or getting a proportional share of the proceeds when the company is sold.
That is why traditional standard stock analysis focused on the ability of a company to produce earnings and profits, in which investors would share. It is also why investors looked for companies whose share prices were priced at a level that allowed them to buy a share of those earnings relatively cheaply. There are still investors who invest that way, but over the past 30 years there has been a gradual, but recently accelerating, shift in what investors expect from their stocks.
I can almost hear the cries of "OK Boomer!" in response to such an antiquated way of thinking about what buying stock might mean.
Now it has become common for investors to expect nothing from their ownership of a share of stock (or an ETF) except that they will be able to sell it to someone for more than they paid for it. Amazon which has never paid a dividend in 23+ years and says it won't pay a dividend and Tesla, whose share price is more than 1000 times higher than its earnings, offer you nothing more than the chance to sell your share in their enterprises for more than you paid for it.
Owning something whose price keeps going up daily, because buyers have discovered they can get more for it than they paid for it works very well as long as the prices keep going up. I sold a Beanie Baby acquired for $5.00 at our local drug store for $500 back in the 1990s, when that was a lot more money than it is now. But you won't get more than $10 for that Beanie Baby now, though, because like all speculative manias, it came to an abrupt halt for no discernible reason. You still see people listing that same Beanie Baby on eBay (where I sold mine) for $500, but if you look at the completed sales, $9 is the most anyone has gotten this year, and there are a lot of "rare" ones that didn't even sell at a $2.50 price.
That is why some of us elderly, out of touch Boomers worry about whether the market has entered a phase where buying stock has turned into speculative mania. Because history tells us that when that happens, and the mania ends, there can be a long time when stocks just sit around doing not much of anything, and definitely not going up. And we don't even get the dividends now that we used to get in past after crashes to make stocks whose value has sunk worth holding.