Quote from: Richy_T on November 15, 2014, 02:31:48 PM

Quote from: Chang Hum on November 15, 2014, 11:59:00 AM

close you could fairly say I'm describing a lot of penny stocks, however a typical stocks value isn't an arbitrary figure as a profitable company adds value to the stock in terms of re-investing in the underlying business and to share holders in the form of dividends.

When there *are* dividends, it is possible to fairly value a stock but when there are not and the price is based on reinvestment, you may be using some similar indicators to value a company but you are still basically relying on "greater fool".

I do agree there are a lot of stocks that rely on the greater fool and investing in them often times ends badly, but I think that's a bit of a simplistic view. Although it can be nice as a shareholder to get paid a dividend (there can also be tax drawbacks), a company should really only use it's profits to pay one as a last resort after considering whether the money could be more wisely spent re-investing back into the business, making acquisitions or buying back their own stock if they consider it undervalued. The growing tangible value of a company is just as relevant to a stocks price as whether or not a dividend is paid as are a company earnings.