Ralph Melton (ralphmelton) wrote,
Ralph Melton


I don't really understand stock pricing for companies that don't pay dividends.

I sort of understand stock pricing for companies that do pay dividends. You try to predict the rate of return, look at the going price for that rate of return, apply a discount for the risk factor... I'm not claiming that I can do those numbers easily myself, but I can follow an explanation and feel that it makes sense.

The other model of valuing a stock is what A Random Walk Down Wall Street called the "greater fool theory"--X is a good price, because someday someone will be willing to pay Y > X. I don't deny that this sometimes happens, but I'm wary of betting on that. It feels like a financial game of Hot Potato. (Except that the financial term for "Hot Potato" is "bubble economy".)

So consider Apple. Apple has never payed dividends (as far as I know). There's no particular reason to believe that Apple ever will pay dividends. So what basis is there for choosing a price for Apple other than the greater fool theory?
  • Post a new comment


    default userpic

    Your IP address will be recorded 

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.