I still don't fully understand something about the distinction between profit that's reinvested and profit that's "passed to the investor" through dividends or buybacks.
One thing I've heard that seems inconsistent with what you're saying there, is that stock prices will drop instantly as soon as dividends are paid. And this makes sense, since if the price remained exactly the same then everyone would want to buy right before they were paid and sell right after they were paid.
So it seems like in that way, dividends work the same way in which reinvestment works. Whether you expect the profit to be paid in dividends, or whether you expect the profit to increase the value of the company by growing it, either way the stock price goes up to take that into account. And then when the dividends are paid it goes back down a little. So I agree that in either case there can be a lot of anticipation, where it's already built in to the stock price even before the quarterly earnings are announced... as long as they are *projected* to have a profit. But I'm having trouble wrapping my mind around what's different about the profit being paid in dividends versus being re-invested in the company, from the point of view of someone holding the stock. (Other than the differences you mention in your other comment, like volatility and the fact that if you're not getting dividends then you lose everything if you hold the stock all the way until the company dies.) You may be right but I'm not quite seeing it.
Also, ironically... the only stock I have that actually pays dividends, I have it set so that the dividends are automatically reinvested in the stock (it buys additional shares with no transaction fee instead of actually paying me money). So in that case, I will lose everything anyway if I waited till the stock price eventually went to zero. (Of course, it's a mutual fund so that's not really going to happen.)
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One thing I've heard that seems inconsistent with what you're saying there, is that stock prices will drop instantly as soon as dividends are paid. And this makes sense, since if the price remained exactly the same then everyone would want to buy right before they were paid and sell right after they were paid.
So it seems like in that way, dividends work the same way in which reinvestment works. Whether you expect the profit to be paid in dividends, or whether you expect the profit to increase the value of the company by growing it, either way the stock price goes up to take that into account. And then when the dividends are paid it goes back down a little. So I agree that in either case there can be a lot of anticipation, where it's already built in to the stock price even before the quarterly earnings are announced... as long as they are *projected* to have a profit. But I'm having trouble wrapping my mind around what's different about the profit being paid in dividends versus being re-invested in the company, from the point of view of someone holding the stock. (Other than the differences you mention in your other comment, like volatility and the fact that if you're not getting dividends then you lose everything if you hold the stock all the way until the company dies.) You may be right but I'm not quite seeing it.
Also, ironically... the only stock I have that actually pays dividends, I have it set so that the dividends are automatically reinvested in the stock (it buys additional shares with no transaction fee instead of actually paying me money). So in that case, I will lose everything anyway if I waited till the stock price eventually went to zero. (Of course, it's a mutual fund so that's not really going to happen.)