-1

Suppose I buy some stock for 100 but sell it for 50. I will have a loss of 50. It's the same as buying tomatoes for 100 but only able to sell for 50.

However tomatoes have at least some value in themselves (they can be eaten by the owner). How can stock have some value ? Isn't it some imaginary thing ?

How does a stockholder benefit if a company makes a lot of profit ? How does a company benefit if its stock has a high price ?

I understand that it provides some share or ownership. But if we can't receive some amount from companies' revenue every year, what is the point of selling and buying ownership and why will people be eager to buy it ? It's like I have some shares and I can't do anything except hoping someone will buy it for a high price. It doesn't have some value in its own.

To elaborate my question in bit different style : We know there is a limited amount of gold on earth. People like to wear things made from it. Hence its price will go up since rich people will always want to buy and wear it. So what is the similar thing that stock has which causes an increase/decrease in it's price ? Tomatoes hold value because they fill the stomach, gold holds value because it fulfills a materialistic desire, what kind of value does stock have?

5
  • 6
    Does this answer your question? If a stock doesn't pay dividends, then why is the stock worth anything?
    – glibdud
    Commented Oct 25, 2021 at 15:32
  • @glibdud Answers seems to align with my interest (what I want to know). I think people here are better than me and thus they can decide it it's really answers what I am asking. I can't say yes because I am going through answers and it will take time for me to digest them.
    – laser
    Commented Oct 25, 2021 at 15:35
  • The linked answers are good; in short - owning a share gives legal right to the ultimate profits of the company. Sometimes those profits are paid by dividends annually, sometimes only eventually through future possible dividends or future liquidation proceeds. Commented Oct 25, 2021 at 15:47
  • @Grade'Eh'Bacon "future liquidation proceeds". Okay, so it's like I will buy company xyz shares because I believe xyz will make lot of profit, it's value will increase and I will get lot of money if someone buys that company. Similar to how Elon Musk got rich after paypal got sold.
    – laser
    Commented Oct 25, 2021 at 15:56
  • @laser No. I mean 'future liquidation proceeds' if the company ends its business and releases all funds to shareholders [uncommon for public companies, but quite common for private businesses]. The point is that net profits only leave a company in 3 ways: dividends, liquidation proceeds, or [if improperly managed] through future business costs. It is quite possible to invest in a business that goes bankrupt, but if profits continue, shareholders ultimately have a right to a certain % of those profits. Commented Oct 25, 2021 at 16:02

1 Answer 1

0

What if my company buys and sells fruit and vegetables. That company's value is partially the stock including the tomatoes that it owns and partially the amount of profit it might make both now and in the future buying and selling.

If we buy shares in that company we own the stock and we'll be entitled to a share of the profits so that's why we want to do it. The company can pay a dividend to its shareholders from its profits if it wants to. It can even give shareholders tomatoes as perks. So ownership of stock can and does translate to real money and sometimes real goods.

If the company doesn't pay a dividend then perhaps that's so it can buy more fruit and vegetables and therefore grow bigger. If the shareholders think that all future dividends will be bigger if they forgo them this year then perhaps they'll be willing to make that short term sacrifice.

The same applies to all companies really. Generally they sell something, even if it's intangible such as software and make a profit doing so. That profit can then be paid either in part or in whole to the company's shareholders.

Not the answer you're looking for? Browse other questions tagged .