[fredkbloggs]

Have you ever heard that price is what you pay, and value is what you get?

The people who understand this look at dividends. The rest buy companies like Amazon for silly multiples.

P.S. Preferreds may or may not pay dividends. The preferreds that VCs get almost never do. If you own preferreds that do, you probably value them the way you value anything else: present value of future payments.

[prostoalex]

Dividends is just one way of returning money to shareholders. It's preferred by investors buying stocks for recurring income, as it allows for a simple buy-and-hold strategy that kicks back some income on a regular basis.

Stock buybacks is another mechanism, and is preferred by growth investors buying equities out of taxable accounts, as it gives greater control in regards to capital gains, tax loss harvesting and various other tax events.

[fredkbloggs]

Stock buybacks by definition cannot by themselves reward shareholders. They are by their nature an enticement to become an ex-shareholder, and a reward to those ex-shareholders.

The fact that remaining shareholders are, ceteris paribus, "entitled" (but not really) to a larger share of the company's profits as a result is moot if the board never distributes the profits to them. In reality, you're entitled only to what the board decides to give you. For my part, if the board wants to buy me out, I'm happy to take them up on it. The incentives favor becoming an ex-shareholder, so ex-shareholder I shall be.

[JoeAltmaier]

That sounds like 'sour grapes'. Sure, folks can pay crazy prices but not me! I won't participate in all that profit nonsense.

The only value you usually get from most shares, is what you sell it for. And that depends only upon the market. Not some academic definition of 'value'.

[fredkbloggs]

> That sounds like 'sour grapes'.

Believe me, it isn't. I'm no trader and have no interest in speculation. I'm perfectly happy collecting my dividends (that profit "nonsense", as you put it) while you boys do your thing.

> I won't participate in all that profit nonsense.

Riddle me this, then. A company is founded. Takes a few rounds, goes public. Billions of its shares are traded for years. Then it goes bankrupt, and all those shares are canceled.

Who profited? Trading is a zero-sum game by its nature. The profits, if any, accrued to those who were paid dividends. For every trade, show me a winner and I'll show you a loser.

It's fine to bet on the horses. Good fun, fresh air and a pleasant day at the track. Nothing wrong with it. Maybe you'll even get lucky! But if you want to make the sure money, you're better off owning the track... or the horses.

> The only value you usually get from most shares, is what you sell it for.

This couldn't possibly be more wrong. As I just explained, the true and total value (using your definition of CASH MONEY) of any corporation is the dividends it pays. Otherwise, there's a loser for every winner in the trading game. If you only own shares that don't pay dividends, I can understand how you might fall into this way of thinking, but that doesn't make it right.

This is a product of various cognitive biases, among them the Dunning-Kruger effect, the bandwagon effect, recency, groupthink, survivorship, and many others. It feels good to believe that one is a better-than-average trader, that one has skill in trading and can consistently and reliably make money doing it. Because it's often possible to make money without skill, even for periods of time that are large fractions of a human life, it's easy to draw that conclusion, especially when it seems like everybody is making money trading as is often the case in bull markets. Because one is making money trading (or believes he is; it's easy to overlook the bad trades if you don't keep a good accounting, and even easier to imagine unrealized market price gains as if they were CASH MONEY when in fact they are nothing), it's easy to assume that it's the result of skill. But most traders have zero or negative skill, and like the gambler who always lets it ride, will eventually go broke.

I don't really care whether you trade. I don't really care whether you make money or lose money trading (the odds are not in your favor). I certainly don't care what assets you choose to own. But don't tell me that the income I receive from owning -- not trading -- solid businesses isn't profit, or that your way is better than mine. When people start talking like you, I begin to wonder if we once again have a generation of traders in the markets who have never experienced a crash or a secular bear market. Those unrealized gains can turn into losses and margin calls awful fast when things go to shit. Yet shockingly often, even while prices crater, the dividends keep coming.

[harperlee]

Trading, as in "people crazily trying to profit from a dumber / slower counterpart" is zero sum.

But trading, as in, go to market and exchange money for another thing, can be a positive-sum game. If both participants in the exchange have different risk profiles, the exchange might make both of them happy - that's why they go to market, and expect not to be ripped off.

An easy example are future markets (the risk of high prices is good for the guy that has oranges, bad for the guy that makes juice).

Another example, with stocks, is putting your money in diversified assets. If all I have is stocks from company A, and you have only company B shares, and even if both companies are exposed to the same risks, it's good for both of us to interchange stock. If the CEO gets a heart attack, neither of us gets impacted wholly.

The point being: as you can't predict the future, the fact that one party ended up winning is not sufficient condition for the whole thing being a zero-sum game, unless you restrict "the game" to be something smaller than the intentions of the agent, which is dumb.

[JoeAltmaier]

Yet the stock market goes up 15% every year (on average) for the last century. Where does that come from? The 'zero-sum game' fiction is ridiculous urban legend. The price depends upon a market, and I sell to a different agent than I bought from, at a different price - the transaction is nothing like 'zero sum'.

Most stocks don't issue a dividend - yet they have solid, stable prices. Folks use a variety of valuation techniques, but mainly the present value of expected future value. Which means what you think you could sell it for in a year.

Have a nice time with those dividends - but my retirement stock portfolio is worth something when I sell it for income when I'm retired. The dividends are a tiny part of that.