Nothing Was Delivered

Apple Inc has roughly more money than most countries. I don’t imagine they have a Scrooge McDuck style Money Bin. It’s probably all numbers on a ledger somewhere. But suffice it to say that the company is really, really valuable.

There’s been talk about what Apple should do with all that money. Personally, I think they should do something unexpected. Like free tacos for everyone a month. I’m pretty sure they could literally buy everyone on earth a taco or two, once a month. It’d just be a nice gesture.

Not knowing anything about corporate finances, I (naively) thought that Apple investors would get a share of that. After all, paid (invested) cash for a share of the company. The whole reason, I assumed, was to reap a portion of it’s eventual profits.

It turns out that some companies operate this way. It’s called offering a dividend. Apple has never done this, and from what I can tell it’s uncommon amongst tech companies.  With all this cash in the bank, the idea of offering dividends has come up.

John Gruber’s response is that the folks running Apple seem to know what they’re doing. He says

If I were an Apple investor (I’m not), I’d want Apple to keep doing what it’s been doing the last decade or so.

I read that this morning, and realized that I have no clue why people are paying $500 or more for a share of Apple stock.

Let me up front. We could be talking about just about any publicly traded company here. I am 30 years old and I have no idea why people buy stocks. I always assumed it had something to do with that movie Boiler Room. Or Reagan. Or cocaine. I’ve always been fuzzy on the details. I tried to listen to that Planet Money podcast where they explained the debt crisis, but it just made the whole scenario more mysterious.

Let’s imagine that I have $500. I could “invest” that by buying one share of AAPL. I imagine I’ll get some certificate of some sort saying “redeemable for one (1) share of Apple Inc”. Then I put that in a safe and wait a while. While I’m waiting, people keep buying iPhones. People buy apps and MacBook Pros and $50 Thunderbolt cables (seriously?) and Apple keeps raking it in. Their stock price goes up and up. In the mean time, I don’t get any benefit from this stock. I don’t get taken to the front of the line at the Genius Bar. I don’t get sneak peaks at new hardware. My life goes on as before.

Then, when AAPL reaches $1000 a share, I decide to sell. So I find some guy who has $1000 and wants to buy some stock. I sell him mine, cash his check and we go on our merry way. But what I don’t understand is, why does THAT guy want this share? He’s not going to get any benefit from this stock. All he can do is hope that some where down the line someone else will want to buy it from him for some amount greater than what he paid.

So in what sense is this scheme not a pyramid scam?

I am legitimately asking. And again, don’t think I’m picking on Apple here. I don’t understand why I would want to own stock in any company, except in the hopes that someone else is dumber than I am.

The only value I can think of is that one share equals one vote in the direction of the company. Presumably if you get enough votes, you could demand dividends. Still, with millions of shares out in the wild, wrangling up that many shares would be practically impossible.

I was always taught that an object is only as valuable as what someone is willing to pay for it. With that in mind, let’s imagine again that I have $500. I use that money to buy a lawnmower. Lets pretend that is one of those riding mowers, with a comfy seat, a nice drink holder, four wheel drive. This thing is the Cadillac of lawn mowers. Presumably, it has value, because it can do a bunch of things, and it can do them well.

As nice as this lawnmower is, it might not have been a smart purchase for me, because I don’t have a lawn. So I look for someone who can benefit from it. I find a guy on Craigslist that has an overgrown lawn, and would value my lawnmower more than his $500. So I sell it and he buys it because it is more useful for him than it is for me. Isn’t that what Capitalism is supposed to facilitate? Goods ending up with the people who value them the most? I get that when it comes to lawn equipment, or even more esoteric objects like art or rare stamps.

Is that the answer? Are stocks valuable because people have a collector instinct? Have we built our society on a high stakes game of Pokémon? I hope someone out there has a better explanation than that.