I’ve never thought owning stock in the majority of companies is worth it. I thought this way before the market turned sour, and I still feel this way…lets look at why this may be how you should feel as well.
If you invest money by buying a company’s stock, what do you get? Well, that depends on who you ask; if you ask the stock broker who is trying to sell it to you, you get the potential for growth. In fact, our whole stock market wants you to think you will receive growth in your investment by the stock price going up… but I have to ask, what happened to paying dividends? What happened to maximizing shareholder wealth, which was supposed to be the cornerstone to a public company’s purpose? Somewhere between the 7, 8 or 10 figure salaries, side deals, perks and a distorted version of purpose, the idea of paying a healthy dividend has disappeared. In its place is the silly concept that a company should forgo dividends, overpay its top management people and push for unrealistic growth for the sake of making it seem like the company is still in the initial stages of the corporate growth cycle.
The idea that stock price increases should be the main or only reason to buy a stock is built on a house of cards. Think of it as a ponzi scheme of some sort – you buy the stock today, and tomorrow you can sell it to someone else at a higher price…in the end someone will be left holding a severely overpriced stock that pays no dividend and has little value unless you can sell it to someone else.
I believe that one of the reasons we have such volatility in the stock market is due to the fact that there is little value in the stock market outside of the speculative high risk ponzi scheme that we know today. Look at some of the silliness that is permitted with corporate America —
In today’s stock market a company can print millions of additional shares of stock and sell them into the market, diluting the value of its current owners; which, by the way, is exactly what our own US government is doing with the dollar.
A company can sell off assets or technology to another company and declare bankruptcy and the stock holders receive nothing.
A company can be losing millions (and in some cases billions) of dollars a year, and yet they pay large bonuses to their upper management.
The above should not be permitted with a public company. More to the point, why would anyone want to own stock when this type of behavior is not only permitted, but accepted as common practice?
My advice if you are going to invest in the stock market is to buy stocks based on their current and past dividends. Once you find a company that pays a decent return, say 4% or greater, check to see if you believe their business model is sustainable over the time you plan to own their stock. You want to make sure that the company can continue to make a profit so they can continue to pay a dividend. If you follow this thinking you may be surprised to see stable appreciation in the stock price as well.
If you find a good one, share it with me by leaving a comment below…here’s to profitable investing!
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