Monday 5 February 2018

Small investors and large investors

I think that a stock price represents the company's value and the accumulation of discounted future growth. Currently dividends seem not as important as previous that many companies do not pay dividends at all but still attract lots of investors to buy their shares, such as Apple (though it has started to pay dividends). Shareholders are the owners of their companies, the reason for shares having values is because shareholders expect they will get dividends from their companies or sell their shares at higher prices. Let's ignore the option of getting dividends, as many companies' dividend yields are only a bit better than bank saving rates, and investors are bearing a lot higher risk. Then investors' main purpose of buying shares is to sell their shares at higher prices. However, shares need actual functions to gain values. Shareholders can use their shares to influence the companies. However, small investors cannot have sufficient shares to make actual influence on the companies; in these ways, shares owned by them do not have functions. Of course, they can sell their shares to large investors and large investors buy shares from small investors and gain influence over the companies. However, there is a situation when large investors do not need small investors' shares. Such situation takes place when the company has only one large investor and the large investor has already gained sufficient shares to control the companies, then small investors' shares become useless so their shares would be valueless and the large investor have a plenty of ways to get profits from the company anyway. Therefore, the share price will be low and almost valueless under such circumstance. 

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