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If I were to buy a stock of a business that were to live (and grow steadily) indefinitely, and this stock paid no dividends, and could not be sold back to anyone else, what would be the point of buying it?

Because it seems to me, if I cannot sell this "piece of paper" (the stock) to someone else later for a higher price, and if the stock pays no dividends, then there is no profit I can earn by owning this stock. Is my reasoning correct? Or is there a possibility of profit somewhere that I just cannot see?

Thank you for any help. All help is greatly appreciated.

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    Why wouldn't you be able to find a buyer for your shares? – Chris W. Rea May 6 '15 at 19:56
  • @ChrisW.Rea because it was a closely held company, or a publicly traded company with no liquidity – CQM May 7 '15 at 14:17
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Shares often come associated with a set of rights, such as ability to vote in the outcome of the company. Some shares do not have this right, however.

With your ability to vote in the outcome of the company, you could help dictate that the company paid dividends at a point in time. Or many other varieties of outcomes.

Also, if there were any liquidity events due to demand of the shares, this is typically at a much higher price than the shares are now when the company is private/closely held.

  • Great answer. Can you explain the last part about "demand of the shares"? How would that cause a liquidity event? It seems to me that liquidity events only happen when there is no demand for the shares. – Kelsey May 6 '15 at 18:48
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    @Kelsey "liquidity event" is an all-encompassing term for getting cash in exchange for your shares. This can come in the form of buyouts, going public, or other things like bankruptcy liquidation. Buyouts or going public, this is demand for the shares. – CQM May 6 '15 at 18:59
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If that condition is permanent -- the stock will NEVER pay dividends and you will NEVER be able to sell it -- then yes, it sounds to me like this is a worthless piece of paper.

If there is some possibility that the stock will pay dividends in the future, or that a market will exist to sell it, then you are making a long-term investment. It all depends on how likely it is that the situation will change. If the investment is small, maybe it's worth it.

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