This question already has an answer here:
Many stocks don't pay dividends, and it's not like a shareholder has any direct financial gain from increased company earnings. Plus, they can only benefit from earnings if the company goes bankrupt and has to sell its assets. Then what influences demand for stocks?
I get that investors can make money through dividends and through capital gains, but I don't get how they make those gains. Earnings, or future earnings, can lead to gains because it shows the health of the company. But it seems too arbitrary for investors to just invest in a company just based on earnings alone, since they won't get to enjoy those profits.
I also don't understand how investors are expected to make money since they "have a claim to the company's assets", since they can only enjoy those assets if the company goes bankrupt, and usually what's left over for common stock shareholders is negligible (that is, when compared to what creditors are getting).
So do investors only make money based on arbitrarily following the profits of a company's stocks and by observing analyst estimates of future earnings? This doesn't make sense to me since stock value can sometimes go down even if there is an earnings surprise or the company is reporting an increase in profit...
Is it the appreciation in the stock's book value that attracts investors?