Xan wrote: ↑Fri Feb 14, 2020 4:43 pm
You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
Intuitively I think that I'm with Mathjak on this one.
Let me see if I can successfully spell it out.
There is one public company. You are its sole owner. When it was started it had $1,000 in cash, $4,000 in real estate (unimproved land) and no liabilities. You paid the net book value for the company - $5,000.
Five years later, you are still the sole owner, the company still has that $1,000 of cash and still with no liabilities, but it's developed that real estate so it is now worth $29,000. You've received no dividends along the way. You decide to sell to me who is willing to pay the current net book value for the company - now $30,000.
You now have a gain of $25,000. No dividends. All from capital appreciation. I purposely kept out any hoped for future valuations to keep it simple.
If you had received dividends of $1,000 along the way, there would have been $0 cash and then I'd have only bought it from you for $29,000. You still received the same total $30,000 minus your $5,000 basis for the same $25,000 total return.
Am I missing something?
Vinny