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Correction,... I mean't $12.80 $12.20 and $12.60.
Why do we want share prices to go up?
- Thread starter Tysonboss1
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Correction,... I mean't $12.80 $12.20 and $12.60.
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Who said only?
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and in your arguements you also give of the impression that it is impossible for good stocks to become unloved or shunned by the market for a period of time. when that is clearly untrue.
Sdajii
Sdaji
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Well, obviously if you are planning to buy something in the future it might be nice if it goes down first, but what kind of idiot says "I am committed to spending $10,000 every month on company x, regardless of the price at the time"? Anyone with half a brain will choose the best company(ies) to spend their $10,000 at the time they are spending it, not based on a decision they made a year earlier.
If the price has gone down, you got a bad deal on the money you have already spent and you might get a good deal on the money you are spending at the time, and who knows whether or not it will be a good deal in a few months?
Your argument only works if for some insane reason you are committing to a future purchase. If you want to choose your moves a month, year or decade in advance, power to you, and yes, if the company you have chosen goes down it might be a good thing! Hooray!
The word "typically" in front of "only" means that it isn't always the case. Sometimes prices can go down for other reasons, and obviously I was referring to this, because otherwise I wouldn't have used the word "typically". Either way, it's splitting hairs to be focusing on the point.
Julia
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This is actually quite a widely recommended strategy, e.g. dollar cost averaging. It has never made sense to me.
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Errr, sorry, quite right re: only.
Re: my post, I certainly did not mean to create that impression, but I think my point is illustrated by your own words: for a period of time. That's what I've been saying. A share can be underpriced for a while, but it will go up. Hoping it won't is pointless.
In any case, that's a bit beside the point. We still like prices to go up because we make more money, as long as dividend returns are roughly correlated (and they generally are over the long term, if not "for a period of time").
----
I get 100 shares of ABC at $1 and a 100% annual return.
Next year I buy another hundred at $1.
A year after that, I've got $500 (assuming I took the dividends out, rather than reinvested). That is, $200 of shares, and $300 of dividend.
----
Now I buy 100 shares of XYZ at $1 and a 100% annual return and a 100% appreciation.
Next year I can only buy 50 shares at $2, but the return (100% = $100) is still the same as I would have got if the price hadn't gone up.
A year after that I've got $900. That is, the same $300 in dividends that I would have got with a stable price, but my original $100 is now worth $400, and my second $100 is now worth $200.
$900 is more than $500. I like more, as a rule.
----
Now obviously my numbers are nuts, but that was to make the numbers easier to read. Put in any positive appreciation you like, as long as the dividend return remains the same proportionally (which, in general and over time, it usually does for any particular stock).
The point here is that you have two sources of return from shares: dividends and appreciation. Why wouldn't we want one of those? Why *wouldn't* we want share prices to go up?
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I don't know about you, But I don't currently have all the cash I will be investing in 2010 waiting in my bank account. Like most people Money flows into my bank account steadily throught they year.
I contstantly have money building up in my account on a monthly basis from all kinds of sources suchas wages, rent, interest, business earnings, dividends etc.etc.
So I have to constantly find some where to put this money that builds up in my bank accounts, At the moment I am putting about $10,000 a month into the share market, So on a monthly basis I am buying shares.
If the market rallies I will not make good buys, if it slips back I will make good buys, it's as simple as that.
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Yes you have two forms of return, Capital gain and dividends.
But you only benefit from the capital gain once, and that could be years away when you finally sell your stock, but this is the only form of gain alot of people think about. So they end up chasing short term capital gains, and often trade regularly, this is not my stratergy.
The only day I care about higher prices is the day I plan to sell. And Some of my stocks I hope to never sell or at least not for a very long time.
Offcourse if things dramatically change at a company I would look at selling but if not I would be happy to continue to hold and accumulate more. but as long as I am accumulating I prefer the market to be a lower levels rather than higher levels.
we currently have heaps of good companys on the market trading a low P/E ratios, as the market rises, P/e's also rise which means any further funds you put in the market are not being used as effectively.
Today it is easy to find great companies on p/e's less than 10 some less than 5 , 3 years ago this was not as easy, in another 3 years it will probally just as hard.
If you are in the accumulation phase and you are regularly pumping funds into the market, you should be hoping the market stays cheap for as long as possible, not celebrating a shorterm capital gain at the expense of higher p/e's long term.
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Then I would have thought that what's important to you is the P/E, not the price alone. So you have to admit that prices going up is perfectly ok for you as long as the P/E remains stable and good.
You could retitle the thread: why do we want P/E to go up? The answer to that is: we don't. But I guess that doesn't make much of a thread.
You can see, though, how lots of people are NOT holding shares forever, and who consider capital gain to be more important than you do. So given that the question was "Why do we want share prices to go up?" then I think we can say it's answered:
People eventually sell their shares.
Sdajii
Sdaji
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The only two reasons I can think of for making a decision like that are:
1) You got drunk and swore to your wife/friend/pet mushroom that you would use that strategy, and you are compulsively true to your word.
or
2) You are convinced that everyone else is stupid and incapable of making decisions or taking complicated orders, and you have a fixed income of $10,000 per month, and you are going on vacation to the moon for a year and will be uncontactable, thus you will be unable to change your investment strategy during that year.
There are plenty of very poor strategies wich are widely recommended, and also a lot which you will only be given if you pay big dollars for (go figure! A fool and his money, etc).
Sure, if you have a disposable income of $10,000 per month and want to put that into the stock market every month, fantastic, good on you, and I would be doing the same (I wish I was earning enough to have $10,000 left over every month!) but what possible benefit is there to choosing your purchases months or years in advance? What type of moron would honestly say "Oh, dear, the choice I made six months ago turns out to have been a very bad one. I can now see, six months later, that spending $10,000 on company x is a terrible idea, while spending it on company y is excellent. Oh well, I suppose there's no escaping the decision I made back then, so here I go with my monthy routine of logging in entering my buy order for $10,000 at market of company x"?
If the above is your strategy, and towards the beginning of your lunar vacation the price of stock x goes down, it might be great, assuming that the company is still holding its original value (very unlikely).
Fortunately for me, I don't have anyone I am loyal to who would allow me to make investment promises to while heavily intoxicated, and I don't expect to be out of contact for a whole year at any time in my living future.
Why do I want share prices to go up after I buy? Because it makes me a profit, and I prefer that to a loss.
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Did you watch the Warren Buffett video I posted.
http://www.youtube.com/watch?v=9sgCYOeYrnw&feature=channel
What are your thoughts about what he says in the first 3 mins.
Sdajii
Sdaji
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I have just watched it, let me tell you what I thought during the first three minutes, and then the 30 seconds after that...
At eight seconds I was thinking "My goodness, is this the most stupid person ever to be featured on YouTube?"
At 45 seconds I thought "That's a good point, although it's something I already knew, and it has nothing to do with that stupid ASF thread" I also puzzled over why the audience was laughing, and deduced it consisted of stupid Americans (not that you would have trouble finding a more stupid group of Australians).
As 1.10 I was thinking "Yeah, this is the same crap we've already been through in that stupid thread. It's not necessarily bad, and often it's great if the price goes down BEFORE we buy something, duh".
At about 1.40 I was thinking "You must be kidding me. To my knowledge the necessary drugs have not been invented for me to take this seriously. What kind of lobotomised prokaryote would want to spend up on investments in the hope that prices would not increase for 20-30 years? And why is the audience still laughing? Was I incorrect earlier? Is it actually made up of lobotomised prokatyotes? Perhaps, but they must be on those drugs, which must actually have already been invented"
At 2.05 I was thinking "Gee, he really is waffling. If something is going to be revealed by 3 minutes the pace had better pick up, not to mention the direction"
At 2.30 I was thinking "Okay, so again he is saying that if things go down it might be a good time to buy. Old news. Someone should probably tell him about falling knives, and it's really not looking like anything worthwhile is going to be said in the next 30 seconds"
At 2.40 I concluded that the audience is drunk or drugged with something which induces laughter. Either that or they had been paid to laugh. I then thought that perhaps there was no audience and I was merely listening to canned laughted. I pondered the possibility that this was actually a c-grade American sitcom.
At 3.00 I wondered why I was not recommended to watch only up to 2.30, since the previous 30 seconds had contained nothing of any more substance than inane laughter due to the speaker's offer to let someone else choose which prokaryote asked the next question. I decided at this point "In for a penny in for a pound, I'll wait another 30 seconds just to be thorough, even though my suspicion is that I'm turning three minutes of my life I'll never get back into three and one half"
At 3.07 I thought "Wow, he actually told a joke, and even though it was painfully lame, I would have thought they would have hit play on the canned laughter for it.
At 3.20 I thought "Wow, he just admitted that he made his money by luck. Why is anyone listening to his strategy as useful model? Oh, that's right, they're lobotomised prokaryotes"
At 3.30 I thought "Three and one half minutes of my life I'll never get back. I wish my predictions about stock market movements could be as good as my analysis of forum threads", although of course, I knew that one was a challenge while the other could have been done by that prokaryotic audience, and probably even inanimate objects.
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Well He is the worlds second richest man, Having turned $10,000 of investment funds into over $40 Billion over his life. So I would say that he knows what he is talking about.
See I don't think you get what I having been trying to say, I don't invest in stocks that I know are going to go down. I invest in great companies that I know will most likly go up. What I am saying though is I don't sit here wishing and hoping for capital gains to arrive asap, and I don't live in fear of market down turns either.
I can't stop the stocks I invest in rising, and it is good to see my portfoilio grow in value. But I know the higher my stocks rise the less I can buy, So I actually don't care if my stocks stagnate for a while.
i still dont get the point of this thread
of course buyers want to buy at cheaper prices. but they want the price to go up afterwards
sellers want to sell at higher prices (but they want the price to go down afterwards, otherwise they will have felt that they've sold at the wrong time)
you only need to look at market depth to see buyers vs sellers
"why do we want share prices to go up" - we want share prices to go up to make money????
if you don't care about what happens in the short term, that is called long-term investing. you haven't created a new form of investing. warren buffet has not created a new form of investing either
i still don't get the point of this thread
of course buyers want to buy at cheaper prices. but they want the price to go up afterwards
sellers want to sell at higher prices (but they want the price to go down afterwards, otherwise they will have felt that they've sold at the wrong time)
you only need to look at market depth to see buyers vs sellers
"why do we want share prices to go up" - we want share prices to go up to make money????
if you don't care about what happens in the short term, that is called long-term investing. you haven't created a new form of investing. warren buffet has not created a new form of investing either
i still don't get the point of this thread
So_Cynical
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I'm with ya Tyson...i think most ASF members are just not comfortable with believing in a stock and buying in with a falling or stagnant SP, and that's why your getting some bemused comments in this thread.
I liked the Buffet video and didn't realise how funny, practical and honest he was....first time ive ever seen him on video and surprised at how similar we think re Markets.
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The reason for the bemused comments is that everyone knows that what Tyson wants is undervalued stocks and he wants them to remain undervalued as that allows him to accumulate at a lower cost. Undervalued means that they are mispriced by the market. That is also what Buffet looks for.
But there is a huge difference between stock prices falling or remaining static because they are mispriced and hence undervalued and stock prices falling or remaining static but are fairly valued. The latter implies that the earnings are also falling or remaining static (assuming risk is constant). Clearly that is not what you want.
Undervaluation is usually only a temporary aberration and over time stocks should trend to their fair value. If fairly valued, you should want stocks to go up in value not down. In the former case, your earlier purchases now earn more per share than what they earned when you first bought them. In the latter case, your earlier purchases now earn less per share than what they earned when you first bought them. It should be obvious which is preferable.
Sdajii
Sdaji
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Maybe we're all just playing with words.
Obviously if we want to buy something and its intrinsic value won't change, we will be happy if its price goes down before we buy. If we want to accumulate something specific over a period of time we won't want it to go up until after we have finished buying.
The apparent stupidity probably comes from the (perhaps deliberate) implication that the "I want my investments to depreciate" crowd that they want their investments to depreciate after they have purchased them, rather than before.
You're right, Tyson, he isn't the most stupid person on YouTube, but a lot of clever people have given out bad/stupid advice for a lot of reasons, and generally if people have strategies that work spectacularly well they're not going to share them.
The argument probably comes primarily from the deliberate attempt to misrepresent the message for sensationalistic value; if the original very obvious message was put forward unambiguously everyone would agree.
Obviously if we want to buy something and its intrinsic value won't change, we will be happy if its price goes down before we buy. If we want to accumulate something specific over a period of time we won't want it to go up until after we have finished buying.
The apparent stupidity probably comes from the (perhaps deliberate) implication that the "I want my investments to depreciate" crowd that they want their investments to depreciate after they have purchased them, rather than before.
You're right, Tyson, he isn't the most stupid person on YouTube, but a lot of clever people have given out bad/stupid advice for a lot of reasons, and generally if people have strategies that work spectacularly well they're not going to share them.
The argument probably comes primarily from the deliberate attempt to misrepresent the message for sensationalistic value; if the original very obvious message was put forward unambiguously everyone would agree.
skc
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You should really do some background reading on Warren Buffet...
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Many people here have the mindset that holding "good companies" long term is a smart thing to do, without defining what longterm is, nor bothering to look at the historic performance of the universe of companies over the long term.
Historically, there is a very great chance, think 90% probability that any one company will disappear over the long term. Technologies change over time and companies that may seem too big to ever fail, fall away as they concentrate on their competences, think the railway companies of the nineteenth century. Nothing is too big or unique to fail over the long term.
Shares bought on dividend payouts alone, seems a fantastic idea until a few of them start not paying dividends, then the share price collapses as the company reorganises (or goes bust). The only logical way to make money from the stockmarket is to trade shares, be it short, medium or long term.
If/when share prices don't move, then companies/new issues find it very difficult to raise money for expansion and as a result the economy suffers
brty
Historically, there is a very great chance, think 90% probability that any one company will disappear over the long term. Technologies change over time and companies that may seem too big to ever fail, fall away as they concentrate on their competences, think the railway companies of the nineteenth century. Nothing is too big or unique to fail over the long term.
Shares bought on dividend payouts alone, seems a fantastic idea until a few of them start not paying dividends, then the share price collapses as the company reorganises (or goes bust). The only logical way to make money from the stockmarket is to trade shares, be it short, medium or long term.
If/when share prices don't move, then companies/new issues find it very difficult to raise money for expansion and as a result the economy suffers
brty
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Hey Brty,
In regards to 90% of companies disappearing, I have heard a similar number be throwen around when some people (property investors mainly) try and discredit the share market.
It's true almost 90% of the companies listed today won't exist in 50 years if you searched for them by name or asx code. But alot disappear due to mergers. take overs and buy outs.
for example, Westfield holdings, westfield america trust and westfield property trust have been merged in "Westfield group", Coles Myer.ltd have been split and sold off. BHP LTD and Billiton were merged into BHP Billiton.
Offcourse many companies do go bust, speccy miners especially. that all part of investing really.
also,
I note on investing for dividends, By all means management can cut dividends for many reasons, as long as the underlying earnings are not affected a cut in dividends can be good, the company can choose to lower dividends to retain cash for many reasons such as fund expansion, clear debt, fund a share buy back etc etc.
When I calculate the fair value of a company I use the companies cash flow profit not the dividend yeild or the report able profit.
the reportable profit does not usally give a clear idea of a companies cash profit, it is quite i distorted number.
P.S - I am not taking a cheap shot at property investors in the first paragraph, I invest in property myself, I am just talking about the crowd that bag that share market with out ever taking the time to understand it.
