Yeah. Stock buybacks are the dominant means of returning value to investors in the US economy for tax reasons, so just thinking about dividends will make you underestimate the volume of that flow. I suspect that the idea that stock buybacks will, by increasing the price, effectively transfer to the on-paper value of the people holding the stock is true *in expectation value* in that if the stock prices were systematically wrong with respect to it there would be arbitrage opportunities, but that sort of analysis doesn't tell you anything about whether to expect the *variance* to be larger in one case or the other, and that a situation where most investors buy because they expect the price to go up rather than because they expect to receive a dividend income is more prone to speculative feedback loops.
As for value being transferred to investors whenever the company mnakes a profit, I don't think that's actually true. If you own 100 shares of XYZ that are worth $10 each at the current market price, you don't actually have $1,000, you have 100 shares of XYZ that you believe are worth $1,000 and which, as long as the present volume of trade in XYZ is much larger than 100 shares, you could sell for $1,000.
It definitely isn't true that the stock price goes up every time a company makes a profit; it happens all the time that companies release quarterly earnings statements saying that they made a profit, but less than had been expected by whatever analysts and widely-held beliefs were influencing the market price, and the stock goes down because of it. The information about the company's actual performance was influences the stock price relative to what expectation of its performance was already priced into it by the market, not in relation to some particular absolute scale.
Thus, I think the best way to describe this situation is something like this:
1.) XYZCorp announces a profit of $0.25/share, when everyone was expecting $0.30/share.
2.) Some investors decide to sell; the price goes down.
3.) The ones who buy those shares are, in effect, making a bet that the future of XYZCorp is brighter than those numbers make it look.
4.) If you owned some shares and just hold them, your investment is worth less on paper, but there hasn't actually been a real transfer; you just have lower expectations for the future and a lower estimate of how much what you own is 'really' worth. The real transfer has been between the people who just sold XYZ and the people who just bought it.
no subject
As for value being transferred to investors whenever the company mnakes a profit, I don't think that's actually true. If you own 100 shares of XYZ that are worth $10 each at the current market price, you don't actually have $1,000, you have 100 shares of XYZ that you believe are worth $1,000 and which, as long as the present volume of trade in XYZ is much larger than 100 shares, you could sell for $1,000.
It definitely isn't true that the stock price goes up every time a company makes a profit; it happens all the time that companies release quarterly earnings statements saying that they made a profit, but less than had been expected by whatever analysts and widely-held beliefs were influencing the market price, and the stock goes down because of it. The information about the company's actual performance was influences the stock price relative to what expectation of its performance was already priced into it by the market, not in relation to some particular absolute scale.
Thus, I think the best way to describe this situation is something like this:
1.) XYZCorp announces a profit of $0.25/share, when everyone was expecting $0.30/share.
2.) Some investors decide to sell; the price goes down.
3.) The ones who buy those shares are, in effect, making a bet that the future of XYZCorp is brighter than those numbers make it look.
4.) If you owned some shares and just hold them, your investment is worth less on paper, but there hasn't actually been a real transfer; you just have lower expectations for the future and a lower estimate of how much what you own is 'really' worth. The real transfer has been between the people who just sold XYZ and the people who just bought it.