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Excuse me if this has been asked before, but I can't find the answer I am looking for.

In a stock market, securities, typically shares, are bought and sold. But what makes a share valuable. Of course, other people buying shares, makes it valuable, in a never-ending loop, but if I were to grab a megaphone and say "Shares are worth nothing, trading is worthless", what's there to prove me wrong.

In other words, What benefit do I get from buying a share, if I do not plan/want to sell it?

Is it company ownership? Voting rights? The idea of owning shares?

Nate D
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1 Answers1

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What benefit do I get from buying a share

  • Voting rights, although you usually have to have a LOT of shares to make your vote relevant
  • Dividends - many stocks pay periodic cash dividends
  • Ownership - you get a portion of the remaining proceeds (after debts are paid) if a company is liquidated

The value of any financial asset is its ability to generate cash in the future, and thus the "value" of a share is heavily influenced by the dividends it pays and the equity value. The equity value can be calculated different ways. Two common ways are to just take "book" value, meaning assets - liabilities, or you can look at the projected free cash flows of the company discounted back to the present time.

Voting rights don't typically influence a share price except in hostile takeover scenarios (meaning someone buys up a lot of shares to have more influence in company decisions)

D Stanley
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