What would happen if a companies profits just stayed the same over a period of quarters? I obviously don’t understand it at all but isn’t it just unsustainable to expect growth indefinitely?
In: Economics
There are millions of businesses – usually small ones owned by the same people that operate them – that are perfectly happy just pootling along, making a bit more profit one year, a bit less the next etc. The employees and suppliers get paid, the taxes get collected, dividend paid out and everyone’s happy.
There’s a fairly significant risk to simply being satisfied with this, though, because there are huge number of variables that go into how well a business does and not all of them are controlled by the business. So even this content, humble business owner is incentivised to feather their nest so that they can weather storms later on, to mix my metaphors. This isn’t what you’re talking about, of course, but I think it’s easy to think that the only businesses that exist are giant corporations when it’s not the case.
As for the actual thing you’re talking about, the issue is that…
> isn’t it just unsustainable to expect growth indefinitely
Most shareholders don’t expect growth indefinitely, they just expect growth *now*. This is almost tautological – would you buy shares in a company that you think is going to do poorly? Even if you’re happy with a business not growing, why *not* buy shares in a company that you think is going to grow? And if everyone that’s buying shares is doing that, then every shareholder thinks the company they have shares in should be growing. They might not think it will be in 5 or 10 or 50 years, they just think it will be for the duration that they own it.
Beyond just this, there are arguments to be made about gaining dominant market positions, being able to fund X, Y or Z, ensuring they don’t get gobbled up by the competition etc. But fundamentally it all comes back to the fact that all shareholders believed their company was capable of growing at the point they became shareholders, with only a handful of weird exceptions.
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