Homepage
PR Newswire
The pricing of investment products are similar to products from other categories.
The pricing of most products in a category are based on well established value proposition; paracetamol pills which cost a dollar or so and will cure my headache. On the other hand, the pricing of a small number of products in that same category are based on exaggerated-yet-unverified claims; this latest pill costs $8,000 and my experiments show it can possibly cure your headaches forever.
How an investment product is priced thus depends on how investors think/believe the stock will eventually reward them.
If they believe that the company is capable of growing the stock price, they will gladly accept not having dividends. Like Berkshire Hathaway, which pays no dividends, but has a share buyback policy pegged to NAV. Because WB has been keeping to his SBB policy for many year, BH investors are affirmed that as BH's NAV increase, so will the stock's price.
This also applies to the tech companies -- which have a very poor record of paying dividends -- where investors believe that said tech company will grow to dominate the specific market they are operating in. And perhaps at some later time, when the market has matured, begin to distribute dividends. Whether these tech companies succeed in their market, and eventually pay dividends, or not, is besides the point. It is investors' belief/hope/expectation that will drive valuation.
But few companies that opt not to pay dividends are spared backlash from the investing public. BH and most of the tech companies are the exception rather than the rule.
For the rest of the companies on the market -- which have not gained the trust/faith of the investing public to retain their earnings in exchange for extraordinary gains -- investors will demand a dividend payout, and will value them according to how much they pay.
The pricing of most products in a category are based on well established value proposition; paracetamol pills which cost a dollar or so and will cure my headache. On the other hand, the pricing of a small number of products in that same category are based on exaggerated-yet-unverified claims; this latest pill costs $8,000 and my experiments show it can possibly cure your headaches forever.
How an investment product is priced thus depends on how investors think/believe the stock will eventually reward them.
If they believe that the company is capable of growing the stock price, they will gladly accept not having dividends. Like Berkshire Hathaway, which pays no dividends, but has a share buyback policy pegged to NAV. Because WB has been keeping to his SBB policy for many year, BH investors are affirmed that as BH's NAV increase, so will the stock's price.
This also applies to the tech companies -- which have a very poor record of paying dividends -- where investors believe that said tech company will grow to dominate the specific market they are operating in. And perhaps at some later time, when the market has matured, begin to distribute dividends. Whether these tech companies succeed in their market, and eventually pay dividends, or not, is besides the point. It is investors' belief/hope/expectation that will drive valuation.
But few companies that opt not to pay dividends are spared backlash from the investing public. BH and most of the tech companies are the exception rather than the rule.
For the rest of the companies on the market -- which have not gained the trust/faith of the investing public to retain their earnings in exchange for extraordinary gains -- investors will demand a dividend payout, and will value them according to how much they pay.