Why do we want share prices to go up?

[Sdajii]

Looking at companies going bust, are they more likely to be on the up, or on the decline, in the years prior to ceasing to exist?

 

[brty]

Tyson,

But alot disappear due to mergers. take overs and buy outs.

The problem with "a lot" is that many that are taken over are taken over with scrip, the punters keep the scrip and the new company eventually goes bust, think FAI insurance taken over by HIH as an example of this.

Warren Buffett, who has been bandied about in this thread, often quotes the DJIA performance throughout the 20th century as having a performance of 6.5% pa, and how much that would make for long term investors. However what he fails to mention is that if your great grandfather had bought $10,000 of each component of the DJIA on 1/1/1900, and handed those shares down (and all splits) from father to son, the combined value today would be precisely nothing.
None of the original companies of 1/1/1900 exist today. Several were taken over by others that subsequently went bust.

I am a share trader as well as a property investor, amongst other things, however I like to know about the realities of investing in anything. I made the mistake of buying good, solid, high earning, high yielding blue chips in 1982. None of those companies exist today, I was a slow learner and did my dough on them, rode them to oblivion.

brty

 

[Tysonboss1]

Looking at companies going bust, are they more likely to be on the up, or on the decline, in the years prior to ceasing to exist?

Possibly going through the roof actually, think enron, the many dot com stocks, babcock and brown, abc, centro etc etc.

The above mentioned stocks price rises had nothing to do with real earnings.

What I am talking about is companies that have strong "REAL CASH" earnings and for what ever reason become unloved.

But the essence of my original arguement remains the same, it takes along time for real value to build inside a company, But alot of investors want quick returns. to the point where they check the market constantly.

they want the speculation of other investors paying higher prices to generate their returns rather than the underlying assets generate their returns.

Lets take a real world example, Westfield group creates it's return by building and leasing shopping centres. a large chunk of it's profits come from longterm leases.

Using your example that shares mainly rise and fall along with the fortunes of the underlying company suggests that it's share price should be relativly stable. But it's not, it's share price moves all over the place for many reasons.

The westfield share price along with the market in general is often dragged up or down on data and news from around the world that has little affect of their day to day earnings.

 

[Tysonboss1]

Warren Buffett, who has been bandied about in this thread, often quotes the DJIA performance throughout the 20th century as having a performance of 6.5% pa, and how much that would make for long term investors. However what he fails to mention is that if your great grandfather had bought $10,000 of each component of the DJIA on 1/1/1900, and handed those shares down (and all splits) from father to son, the combined value today would be precisely nothing.
None of the original companies of 1/1/1900 exist today. Several were taken over by others that subsequently went bust.

I don't know what stocks make up the djia, But if one of those stocks was coca cola, and not $10,000 worth but just a single coke stock was handed to you along with all it's dividends and splits, you would have about $5,500,000.00.

But anyway I don't really want to get into a dicussion about the long term viabillty of the stock market in general. You and I have completely different strateries, I prefer to trade as little as possible.

 

[Tysonboss1]

I made the mistake of buying good, solid, high earning, high yielding blue chips in 1982. None of those companies exist today, I was a slow learner and did my dough on them, rode them to oblivion.

brty

May I ask what those companies were,

 

[brty]

Tyson,

Kemtron and Kern Corp are two that I remember, but if I had bought Woolworths or Carlton United Breweries the result would have been no different.

Coca-cola was added to the DJIA on 12-3-1987.

brty

 

[Tysonboss1]

Tyson,

Kemtron and Kern Corp are two that I remember, but if I had bought Woolworths or Carlton United Breweries the result would have been no different.


brty

I don't no that much about the history of woolworths, What happened to them between 1982 and the present. did they go bankrupt and then get reborn as a new entity or somthing

 

[brty]

Woolworths was taken over by Adelaide Steamship during the '80's in a paper take-over. Adelaide steamship went bust, the administrators sold off Woolworths in a new float. Likewise for Carlton United Breweries that were taken over by Elliot's IXL, which went bust and the company Fosters was created/sold off to new (and existing) investors.

brty

 

[Tysonboss1]

Woolworths was taken over by Adelaide Steamship during the '80's in a paper take-over. Adelaide steamship went bust, the administrators sold off Woolworths in a new float. Likewise for Carlton United Breweries that were taken over by Elliot's IXL, which went bust and the company Fosters was created/sold off to new (and existing) investors.

brty

That would be the kind of thing I was talking about when I said I am happy to hold forever unless somthing changes dramatically at the company,

Even though, if you had a portfolio of 10 companies, you would only really be down 10% or 15% of your total portfolio, so in the grand scheme of things you have only lost about 1 or 2 years growth in a 1 in 20 year incident.

no biggy really.

 

[SmellyTerror]

...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.

Any response to that? I'd figured the thread was over.
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