What if Stock Market Remains Closed Forever!Tanmay Gadre
Mr. Jeremy Chia suggests that long-term investors shouldn’t bother even if the stock market remains closed forever. He says that even if we are never able to sell our shares, a truly good investment bought at the right price should still pay off over time. How? Let’s read:
An investor can’t sell the shares if the stock market will remain closed forever. Yet, the investor will remain entitled to future dividends of the company. The goal of a long-term investor shouldn’t be simply to sell off an asset at a higher price to a buyer. It should be to hold an asset for its cash flow creation capability.
Many companies are in different phases in their lifecycles. If a company is growing rapidly, it may not pay dividends. After some time, once it matures and it starts building up excess cash. It can then start paying dividends to its shareholders. But one has to remain patient for that. If the stock market remains closed forever, these patient shareholders will eventually start receiving dividends. These dividends will eventually exceed what they paid to buy the shares.
Therefore, an investor should invest in a stock after checking the following:
- How much cash flow can the company potentially generate?
- Can I receive back what I paid for buying the stock by simply collecting the cash flow over the years?
- Will I eventually get more than paid for even if no one offers to buy the stock in the future?
If an investor has paid too much for the stake in the company, the investment may not pay off. Even a high-growth company may not generate enough cash to reward such a shareholder. In today’s market, many investors have bought a stock hoping to sell it to a “greater fool” at a higher price. They don’t buy it to benefit from the cash flow of the stock and are unlikely to make back their capital.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”