So the value changes over time. Nothing to be surpised at. If everyone knew how a company was going to do, the stock market wouldn't be necessary, and they'd be traded like bonds. Actually, the owner would probably issue bonds instead of giving up a controlling position, but that's a technicality.

For a growth stock, the question is always when the growth is going to stop. Is google going to once again some day be the company that just provides a lone search box on their home page? Or are they going to provide you The Google Desktop and leave you with no need for a windows computer? The search box and associated advertising are decent money makers, but it's the all encompassing google desktop or hope of some other revolutionary product that really props up thier stock price. If it becomes increasingly clear that WYSIWYG with google, the stock price will come down to match their earnings much more closely.

Matthew

For the record, my initial question has been answered and I'm fine with the answer. We're just arguing semantics now.

What I'm saying is that you can pay money for something and have the value of that thing be more or less than the value of the money you paid. If that were not the case, no one would invest in the stock market, because, as we've determined, the ultimate value of the stock is determined by dividends the company pays plus end-of-life returns. My argument is that that ultimate value never changes, it's just impossible to know, since it's a fixed point in the future. The price you pay for stock is pushed by the stock market to what people think that ultimate value is going to be, and it's usually probably pretty close.

What you're saying is that the amount of money it would cost to buy all the shares of the company is the value of the company. I'm just saying that I'd rather reserve the term "value" for it's total final payoff and call the cost of buying all the shares something else. And the reason I say that is that, like I already pointed out, if you were to somehow buy all of the shares and then liquidate the company, the amount of money you got out of the liquidation is likely to be more than the amount you paid for the stock. Otherwise, corporate raiders wouldn't exist. And I contend that there needs to be separate terms for the price of all the shares combined and the ultimate value of the company.

But, like I said, I think we're just arguing semantics.

You can borrow some terminology from accounting to make the discussion more clear. Present value is what you pay today. Future value is what it's worth tomorrow. When you're making an investment decision, you're (hopefully) making your best educated guess about the future value, adjusting that to the present day (discounting it against the inflation between now and then), and then deciding whether the adjusted future value is worth more than the present value. If so, you have a rational justification for buying the stock.

Of course, nobody in 1986 could have predicted that Microsoft would have 288:1 worth of stock splits over the next two decades and ultimately pay dividends that were 5x the purchase price of the stock. That uncertainty necessarily depresses the present value of the shares to a rational buyer. Nonetheless, there is still a present value and a future value and they're never the same.

Cool. Accepted terminology always helps.

Yeah, semantics!

Well, it's possible and practical -- though not easy -- to make money as a day trader, so there's obviously value in it beyond the direct relationship to ownership.

I suppose it is a house of cards (or maybe collaborative hallucination is a better phrase), but I think that any system that tries to connect abstract
philosophical ideas to the concrete real world in a usable way is equally flimsy. Look at the concepts of marriage, goverment, or law. Examine those beyond just how they're used and praticed. At some point you cross a boundry between how it works and what it means.

--Nathan

Day trading is a whole different world (plus, you'll note I was careful to talk about "rational" investing behavior). The only clearly rational (i.e., even Bitt would agree it makes sense) form of day trading I've ever heard of is currency arbitrage. You program your computer to watch all the pairwise exchange rates. If you can find a cycle that causes your money to increase when you make a complete loop, then you push as much money through that cycle as fast as you can until the cycle closes.

The only other possibly rational way to make money with day trading is to have hair-triggered reflexes combined with hard core financial modelling. If you detect a security that, for whatever reason, has dropped below the price your model says it should have, then you buy, buy, buy. If it gets above, then sell, sell, sell. Of course, your model might be wrong and you could get deeply screwed.

And the funny thing to me, is that when people buy buy buy, the price of a stock goes up, if a LOT of people do it at the same time. Opposite is true when you dump stock.

Supply and demand shouldn't have an effect on stocks, if you ask me. But then, nobody does.