The reason this “dividend” discussion was permitted to continue through trading days was because it became painfully obvious that there are more than a vanishing number of forum participants who do not have an understanding of how capital markets work. I am hoping that some of the discussion has reached the consciousness of these members - hoping.
Among other important answers, FC finally brought out what I thought would have been raised very early on (and if it had been, my apologies to another contributor for having missed it): as has happened innumerable times in the past, a traded company that does not pay dividends also has enriched its shareholders by a third-party corporate buyout.
But the most important reason for capital markets not just to exist, but to establish - through the trading activities of those who can buy and sell without the layered complexity of a dividend - the worth of the corporate entity. And THAT thereupon is what allows the company once again to return to the capital markets, through equity or debt in all of their manifold permutations, and it is that which indeed, contrary to a prior poster’s assertion, is how the capital markets DO create REAL value.
I do think a discussion on company valuation preferences is particularly important with regards to Tesla.
Part of the reason there is such a divergence in opinion on Tesla stock, and why many people with typical finance experience have been sold on the Tesla is way overvalued narrative is because different people have different valuation experience, using different methods and embracing different theories on valuation.
My background was in science before I worked in investment banking (I'm not working there anymore), and I was surprised at how dogmatically people believed in valuation theories and “facts”, which seemed so clearly to be either rules of thumb or very early stage science. As in much of science, these are not always “facts” but just our current best explanations which will have to be iterated and improved in the future.
Similar to the divide between quantum physics and general relativity, some valuation methods and valuation expertise are only functionally useful within a narrow range of criteria, such as for example tools used to value growth companies (or at the extreme, startups) vs value companies.
The vast majority of financial capital is invested in mature companies so this is the experience most people in the financial industry have. Many of the people working in this subset of finance falsely believe their experience and valuation methods are easily transferable across the whole of finance. Hence we see investors such as Einhorn and Chanos completely out of their comfort zone trying to apply value investing methods to a startup like Tesla.
The discussion on whether actual dividend payments are ultimately the only source of value for a company here is much less practically relevant in the near term (I think everyone on both sides of the argument here still understands that short term value methods like P/E ratios etc are not a useful method of valuing startups and growth companies). Still, it does highlight how emotionally attached people are to their valuation beliefs.
I’ve spent a lot of time studying the different methods of valuing companies and frankly I don’t think much of them. I choose specific traditional methods when they are most practically useful, but I generally use my own valuation methods which are heavily based on expectation value across hundreds of probability weighted alternative financial models rather than using an arbitrary base case with arbitrary discount rates.
I only really spend time investing in and valuing difficult to value companies (startups, growth companies, fast declining companies, distressed companies) because I think this is where it is much easier to beat the market.
Ultimately there are three main ways to beat the market on a specific stock investment - relative to the crowd sourced equilibrium view reflected in the current price:
• Use a more appropriate valuation methodology
• Have a more accurate forecast for the company’s future cash flow
• Better predict upcoming catalysts or corporate actions.
People with a background investing in mature companies do not have experience with the best valuation methodologies for a company like Tesla. They also do not have experience of how to think about disruption, rapid consumer change, experience curves, operating leverage, optimum use of capital, technological innovation etc, so it is much more difficult for them to form an accurate forecast of the company’s future cash flow.
This is why we so often see auto analysts and typical financial investors completely failing to get the full picture with Tesla and the EV transition.
