Shares of stock are very real things. They are contracts with rights: voting rights, rights to dividends when declared, rights to residual liquidation values of the company, rights to access books, etc. It is the value that one places on this contract that determines the value of the stock.
Well yes. That's true. In fact the definition of any property they teach you in law school is "a bundle of rights." That is, your property rights are whatever the state defines them as. For instance, I own my home in fee simple absolute, which is set of rights very well defined by centuries of legal tradition.
And you're right, shares are very real things and give you very specifically defined rights. I just have two caveats.
First, and this is the more flaky of the two, is that intangible property such as stock is entirely dependent upon a well developed civil society to enforce those property rights. Not that we're on the verge of living in a post-apocalyptic world where there's no social contract to enforce these rights, but some things are worth considering. Namely, that the more esoteric the property right, the more dependent it is on having a fully functional civil government capable and sophisticated enough to enforce shareholders' rights. It's one thing to have a legal system capable of enforcing your rights to a trunk full of ingots in your basement, it's entirely another thing to have a legal system capable of negotiating the maze of derivatives, hedge funds, SPDR's, REIT's et al. The corollary to this is that your rights to intangible properties are exactly what a court says they are. There are plenty of former Enron employees and retirees who have an impressive portfolio of intangible rights that the court are no longer willing or able to enforce.
Second, and more practically. Stocks are worth exactly what somebody will pay for them. This is determined by complex and ever varying formula of financial fundamentals, mass psychology and public relations. You say "
It is the value that one places on this contract that determines the value of the stock.", which is exactly correct, as far as it goes. The problem is the value of a stock isn't always (or perhaps is seldom...) rationally assigned.
I'm not trying to suggest that people shouldn't buy stock or other intangible property. When I have money I do. I'm just pointing out the philosophical and pragmatic differences between tangible and intangible property.
When the levee breaks...
If I have a barn full of cotton, well, possession is 9/10's of the law. I have a great deal of control over the dispostion of that asset.
On the other hand, if I have 1,000,000 shares of Microsoft, I have a piece of paper and the expectation that the government will support my claim for a defined share of Microsoft's assets. If the government and the society that supports that government are not functioning, my 1,000,000 shares may be worthless.
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Topic: Retirement (Read 9826 times)