Here is a small post on stock ownership. What do people buy when they buy stock? The books say that you buy rights to a share of future cash flows. However, stocks don't work like that. It used to be that companies looked more like bonds; they distributed excess earnings as dividends to shareholders. That doesn't happen anymore. Most companies, like Microsoft, hoard cash and they don't pay dividends.
Does anyone truly think that Microsoft will ever distribute its profits to its investors? No. Doesn't everybody expect Microsoft to eventually end up in the dustheap of failed monopolies? Yes. So what are people buying exactly? Microsoft can't be acquired by another company at the current price. It is too expensive. If it ever is, it will be at a small fraction of its current price and its cash hoard will be squandered defending its failing monopoly.
This all goes to prove that the current market is a abstraction, almost to the point of fiction.
Hey. If you are smarter than me on this, please let me know. I will post all excellent responses. [John Robb's Radio Weblog]
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