As far as I understand, the only thing that investor really get from the company’s profit is mainly from dividends. So, all other P/E ratios, fundamental analysis, chart analysis, etc for stock price growth are no better than just looking into a fortune-teller’s crystal ball? Stock prices seems to be almost entirely driven by “market forces” aka what people feel about the company. Whatever those “expert” analysts say seems to be just trying to put meaning into something that really doesn’t actually impact the stock price, not much difference from horoscope? There are many big profitable companies with almost flat stock prices and there are also companies without any real profits but the stock prices skyrockets.
In: Economics
Stocks don’t JUST pay out dividends, they also (depending on the stock) may provide a vote at shareholders’ meetings and elect the company’s board of directors, though it varies by company if there’s any value here. Often some single shareholder (individual or company) holds 51% of the stock and hence automatic vote winning power.
Stock prices are valued at what people will pay for them. If you can offer your stocks for a 10% purchase mark-up and someone accepts that deal and purchases them, good for you! Whatever their decision making process is, you just profited from it.
A companies’ profitability *should* be a big decision maker in people’s stock choices, but it doesn’t *need* to be, plus it doesn’t have to be TODAY’S profitability. Buying stock when it’s cheap and holding onto it for the big(ish) dividend payouts starting in 3 years may be a reasonable strategy to someone willing to play the long game. Of course, now it’s all speculation and how much the stock is worth, and whether in 2.5 years time it’s worth selling at a profit to someone else.
So, if you find out where those fortune tellers get their crystal balls, let me know!
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