Tuesday, August 13, 2002

There's been a great deal of media coverage given to the stock market, but I have yet to see any explanation of what stocks are actually worth. Stock prices get a lot of attention, but are the stocks actually worth what they sell for? It's not a simple question. Each share of stock grants partial ownership in the company. If a company goes out of business. an amount of money based on the "book value" of the company will be paid to each share. This is the minimum value of the stock. However, it's difficult to find out exactly what this value is--the usual sources of information, such as Yahoo Finance, don't say. In theory a company distributes its profits to shareholders as dividends, and this is the reason why stocks exist. The idea is that investors buy shares of stock from a new company, thus raising capital. In return they share in the company's profit, and this is where most of a stock's value comes from--the expected future dividends. In practice many companies don't pay dividends, even if they are very profitable. This is especially true in the technology field--I don't know of any software developers that pay dividends, for example. Even when a company does pay, the amount is typically only 1-5% of the stock price. At that rate the shareholder is likely to die of old age before seeing a profit! In today's stock market, stock is not so much an investment as it is a glorified lottery. People buy stock from brokers, not the company, and hold on to it in the hope that the price will rise significantly. Whether the stock price actually does go up depends more on random chance than on the performance of the company. In fact, by law it must depend largely on chance, since anyone with actual knowledge is not allowed to use it thanks to "insider trading" laws. So the answer to the question are stocks worth what they sell for is a resounding "no." In fact, many stocks are basically worthless as stocks, since they never pay any dividends. Anyone thinking of investing in the stock market should consider putting their money into lottery tickets instead. comment () trackback ()  5:51:56 PM     Sharon to panel: Iraq is our biggest danger. From Ha'aretz: "Prime Minister Ariel Sharon yesterday told the Knesset Foreign Affairs and Defense Committee that Iraq "is the greatest... [The news, Uncensored.] Here's an interesting passage from the article: "Herut MK Michael Kleiner outraged MKs when he proposed to Sharon that the IDF carpet bomb Palestinian cities. He was responding to Sharon's request that the MKs in the committee propose ways to deal with the terror problem. When Sharon said Israel has no intention of harming the civilian population that is not involved in terror, Kleiner interrupted. "Are the 100,000 people who attended Salah Shehadeh's funeral innocent?" Kleiner explained that a quick victory was within reach if Israel took the right steps. "Just like the Americans bombed the German city of Dresden in World War II, and they bombed Afghanistan and Yugoslavia, we should do the same." He proposed an IDF plane drop leaflets warning people to leave their homes in time, and that the bridges to Jordan be kept open "because after the bombing the people won't have anywhere to return." Sharon angrily shot down the idea. "I would never do such horrible things. That would be an enormous mistake. You do it when you're prime minister," he said to Kleiner. MK Ran Cohen, chairman of the committee, summed up, "Kleiner's proposal is as disgusting as the suicide bombings." This reminds me of Dave Winer's opinion that as our closest ally Israel's actions must reflect US values. The reaction of Prime Minister Sharon and Chairman Cohen to a proposal that Israel behave as America does demonstrates that the Israelis find the idea of lowering themselves to "reflect American values" rather disgusting. Or perhaps not. Perhaps we should consider the possiblity that arbitrarily blowing up civilians is really not compatible with American values. Perhaps by refusing to engage in such actions, the people who run Israel are actually adhering to American values better than the people who run America? comment () trackback ()  9:30:04 AM

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