[luminiferous]

Obviously, growing every quarter significantly is not sustainable. But growing profits every quarter is how stock price goes up, right? Assuming you don't pay dividends on your stock, if you don't grow profits every quarter then your stock price doesn't go up, and the shareholders (via the board of directors) will sack the CEO. The whole incentive structure for corporations seems to cause the short term thinking that you see in large companies. Can you keep the shareholders placated by paying dividends instead of growing stock value via growing profit?

[pc86]

You still need to grow by more than the dividend or you will erode share price over time. Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that.

[blauditore]

> Nobody invests $100 into a company so that a year from now it is $100, even if they get a couple $2.50 checks throughout the year on top of that.

Why not? If it's somewhat reliable (in the long run, averaged out), that's a ROI of 2.5%, which is not too bad I think.

[stale2002]

> You still need to grow by more than the dividend or you will erode share price over time

No you don't.

Imagine a company that has a share price of 100$. And this company makes 10$ in profit, per share, and returns that 10$ in profits to shareholders every year in perpetuity.

Thats a 10% rate of return that investors would be happy to accept in perpetuity.

People accept this deal all the time. Usually they are called "bonds" or "loans", and they act as merely an a perpetuity cash payout.

[StanislavPetrov]

The critical flaw is that one of the stated goals of the FED is to manufacture inflation. You need to "grow" at at least the rate of FED-induced inflation, otherwise you are shrinking. Its how our debt-based, rent-seeking economy "functions".

[titzer]

> Thats a 10% rate of return

It isn't, because it's not compound interest (exponential growth), which is what everyone is after--and needs, to beat inflation. It's a fixed revenue stream. To make it compound, one would have to reinvest the return in this stock or something else, and reinvesting in this stock would increase its demand, which pushes its price up, and then we're off to the races again.

The whole system is mathematically unstable. It's only survived this long due to slow(ish) growth, but it keeps experiencing repeated price shocks, crashes, currency rebases, debt defaults, and finally issuing new currencies (which, btw, is why everyone is going nuts over crypto currencies). It can last quite some time--perhaps a couple generations--when the exponents are very low (read: < 3%), but when the exponents are high (i.e. companies shooting for > 10% growth), this thing is going off the rails. Welcome to the show!

[tracker1]

Nothing prevents you from taking that 10% and buying more shares, or diversifying.

[794CD01]

People accept that deal when they have a very strong guarantee that their $100 will still be worth $100 at the end of the term. Combining the low yields of bonds (let's be honest, your numbers are chosen for their roundness, not their realism) with the low safety of stocks is the worst of both worlds.

[joshuamorton]

He's talking about investing in value stocks.

There's quite literally a word for low growth but reliable stocks that pay out decent dividends. "Value stocks", as opposed to "Growth stocks" where investors expect to see the returns directly in the stock price.

[tracker1]

I think it is and should come down to either reinvestment of returns and growth, or dividends... both grow the economy, provide value and/or increase share value. What doesn't do that is parking capital in other countries as tax havens. I'm okay with the former two.

I do think shareholders are more than happy to see 10-20% in dividend returns annually. They're able to buy more stocks or diversify accordingly. I'm also okay with growth and reinvestment internally in a company (that tends to grow stock value). And it isn't an either/or issue.

What I don't think is reasonable is to see a given company try to get consistent growth in saturated markets they heavily control. It doesn't work, and trying to do so leads to horrible decision making in the longer term.