Dividends are just a mechanism to realize profit without having to sell a security. Amazon and Google pay no dividends, for example, but the gains from their growth are very real. You just have to sell to realize the gain versus a dividend where you receive a payout instead of the price of your holdings increasing.
> Without dividends, the stock market is a zero-sum game.
If a company is able to make profit from their business, then ownership of that company is valuable, regardless of whether they return that profit to you in the form of dividends or not.
I'll ignore the unwarranted insult for the sake of conversation.
Shares have no durable inherent value outside the expectation of profit. Without a dividend, or some tax-efficient simile to them, the expected value of a share you don't sell is exactly zero.
If all the expected value of a share comes from selling for every actor, then selling and buying that share is a zero-sum game by definition.
I'll explain the argument and the counterargument.
The argument is that all companies go out-of-business at some point, eventually. With no way to extract money (e.g. dividends), their long-term value is 0. In the meantime, buying and selling is a zero-sum-game.
This argument is incorrect for two reasons:
1) Dividends are one way to extract value. Another is mergers, acquisitions, and spin-offs. For example, if Musk had bought Twitter with no dividends, shareholders would make money. If Google were split into 50 mini-companies, and Microsoft acquired one of those, shareholders would make money. There are many other ways to extract value
2) Like dollars, shares act as a fiat currency of sorts. We can all keep our saving there if we all keep believing.
If a company isn't in the profit-making business, that's a place for shareholder activism, though. That can be a pool of small investors, or they can be bought by a Berkshire-Hathaway, who can reorganize them for profitability, and resell them.
> 1) Dividends are one way to extract value. Another is mergers, acquisitions, and spin-offs. For example, if Musk had bought Twitter with no dividends, shareholders would make money. If Google were split into 50 mini-companies, and Microsoft acquired one of those, shareholders would make money. There are many other ways to extract value
This doesn't fix the issue. Unless one of those spin-offs eventually makes a profit and pays a dividend, you're still engaging in a zero-sum game. You just offloaded the bag to someone else, either the owners of the merged company, or the acquirer.
> 2) Like dollars, shares act as a fiat currency of sorts. We can all keep our saving there if we all keep believing.
That doesn't stop it from being a zero-sum game, though. We already have fiat currency that is superior in every way, so what actual benefit to the shareholder over holding fiat?
> That can be a pool of small investors, or they can be bought by a Berkshire-Hathaway, who can reorganize them for profitability, and resell them.
Right, so you mean, eventually the company can be made to pay dividends, which is kind of besides the point?
The economy is about distribution of stuff. Money is an abstraction; it's like points in a video game. We made it up. You're asking if one abstraction (ownership of a piece of a factory, land, or other business) ever needs to be converted into another (fiat money) to be worthwhile.
No. It doesn't.
I have a modest bit of savings. I hope to never spend it. I live frugally, since I see no upside to living lavishly. My savings means I can have the job I want. If my boss doesn't like what I do, they can fire me. If I lose my job, I'm not bankrupt, and have time to find another job. Money has less sway over me. Historically, that's actually been super-beneficial to my career, since I could focus on long-term things over short-term ones, and that's always eventually been recognized.
That only requires my wealth to be liquid if a situation comes up.
If I had more savings, I wouldn't need to work for anyone, though. I could do startups and things a lot ore freely. There would be no control over me. I'm pretty good at bootstrapping and operating in the black, but at this stage, the risk profile is too high for me to do this.
Moving up from there, if I had a trillion dollars in wealth, I'd live the same lifestyle, but my wealth would not only free me from control others have over me, but would allow me to control others. I could, for example, hire people to solve hunger, disease, education, or war.
At almost no point do I need actual fiat money.
There's an upside to having my wealth backed by factories, land, and other means of production. As a means of value-store, shares are in every way superior to fiat currency. Fiat currencies tend to inflate, while shares tend to grow in value because they're backed by something real.
Ultimately, there is no perfect value store. Nation-states also don't survive forever, and fiat currencies disappear too. There is value to a robust short-term (e.g. long enough to last my retirement) value store. I do understand that it's all zero sum, in the sense that if WWIII comes up, the zombie apocalypse, or rapture, neither shares nor money will have any meaning.
As a means of exchange, I agree fiat beats shares. I keep a small portion of my money in fiat, and a large portion in shares.
As a footnote, in the acquisition scenario, someone ultimately gets something they want. If I have a company with 1000 acres of land, five pieces of mining equipment, and so on, at the very end, it gets carved up into that stuff. That stuff has real, tangible value.
We both know that money is an abstraction. So are shares.
> You're asking if one abstraction (ownership of a piece of a factory, land, or other business) ever needs to be converted into another (fiat money) to be worthwhile.
I'm really, really not. I'm saying that the act of buying a share with money you already have is zero-sum if that share can never be expected to pay back some sort of dividend.
Shares are only superior as value-stores to fiat currency because they have an expected value higher than their cost. The reason they do so is either because you expect to be able to sell them for more to the next sucker (zero-sum), or because you expect some kind of benefit out of it (dividends of some sort). But beyond that, there are plenty of zero-sum stores of value, like gold, Bitcoin, or unproductive land.
In a fictional world where shares never pay any dividends, they are strictly worse than fiat currency. They are absolutely subject to inflation - it's called share dilution, and it happens all the time. They are not inherently tied to the means of production, because if they did, you could expect to extract some surplus value from the means of production - for them not be able to pay dividends they must be in some intrinsic way alienated from production, whether by speculation or whatever else may be.
> As a footnote, in the acquisition scenario, someone ultimately gets something they want. If I have a company with 1000 acres of land, five pieces of mining equipment, and so on, at the very end, it gets carved up into that stuff. That stuff has real, tangible value.
It only has real, tangible value beyond the price you paid for it if you manage to get some productive out of it and extract a surplus out of a production eventually down the line (profit, dividends, etc...). If it remains a dead asset, its value is unrealized and zero-sum.
Imagine 2 companies (A and B) raise $1 each from investors in their IPOs (first capital raised). A does well over a decade and has $20 cash on balance sheet with no debt. A acquires B and pays $15 in cash for it.
A then dies a slow death over 50 years, never paying a dividend. $2 went in, $15 came out.
