[dereg]

That's a really good question. First, to clarify, capital appreciation refers to the increase of the price of a stock. Investors buy stocks for a different reasons. The primary reason is to receive a return on that investment. Return is an all-encompassing word. Investors earn a return if the stock price goes up or if the company pays dividends.

There are many companies that don't distribute dividends, either because (1) they may be in poor financial health or because (2) they prefer to reinvest that money in assets that will help generate more return. Even without the dividends, people do buy these companies. In the second case, a company's earnings are expected to rapidly increase, thereby generating more value and lifting the price of the stock. (These are called growth stocks.)

Analysts have developed a gazillion ways to determine a stock's value and potential return. Like many other things, the value of stock is in the eye of the beholder. You could be willing to purchase a share of Google for $2, while I may only be willing to spend $1 for a share. A market for Google develops when millions of people apply their own valuations of Google into buying and selling that stock. It's the market mechanism gives the a stock value (price).

It's likely that this answer won't satisfy you, because I'm essentially telling you that a market capitalization is in the eye of the beholder. Questioning a stock's value is an existential question that applies to everything that we buy, hold, or sell.

It's likely that this answer won't satisfy you, but it shouldn't. Nobody should ever feel that they "know" the value of a stock, that's preposterous.

[sopooneo]

I don't think this is right. I don't think it's just in the eye of the beholder, and it is not turtles all the way down. It may be 5,000 layers deep, with people believing what people will believe what people will believe what people will believe. But at it's base, at the bottom, is at least the idea of people who want stocks because you get payed dividends for having them, or might hope to get payed in the future.

Imagine I was a business owner and I made up a new thing called "bleg". The way this works is that I need a new roof for my factory, but I'd rather not borrow the money for it from a bank. Instead I tell all my friends and family, "hey! Give me some money for my business, and in return I will issue you shares of bleg!" And my family says, "oh cool! great! what does bleg get me?" And I respond, "well it get's you a percentage of the total outstanding bleg, of course!" And my friends ask if owning bleg will get them the chance to vote on how my store is run. And I say "No!" And they say, "If you do really well one year, can we have some of your profits?" And I say "No! You don't get that either!"

No on would want bleg. And no one would think that others might eventually want it, so they should get in early before bleg blows up. No, bleg would flop.

[dpark]

> I don't think this is right. I don't think it's just in the eye of the beholder, and it is not turtles all the way down. It may be 5,000 layers deep, with people believing what people will believe what people will believe what people will believe. But at it's base, at the bottom, is at least the idea of people who want stocks because you get payed dividends for having them, or might hope to get payed in the future.

Some people might do that. Others might hope that the company they're buying shares in will be purchased and they'll make money on the deal. Others might hope that they can simply sell the shares in the future for a higher price.

> Imagine I was a business owner and I made up a new thing called "bleg". The way this works is that I need a new roof for my factory, but I'd rather not borrow the money for it from a bank. Instead I tell all my friends and family, "hey! Give me some money for my business, and in return I will issue you shares of bleg!" And my family says, "oh cool! great! what does bleg get me?" And I respond, "well it get's you a percentage of the total outstanding bleg, of course!" And my friends ask if owning bleg will get them the chance to vote on how my store is run. And I say "No!" And they say, "If you do really well one year, can we have some of your profits?" And I say "No! You don't get that either!" > No on would want bleg. And no one would think that others might eventually want it, so they should get in early before bleg blows up. No, bleg would flop.

Of course bleg would flop. You defined it to have no value. If instead bleg were a percentage ownership in the company, people might indeed buy bleg (and they do, but they call it shares of stock).