________________________________________________________________________________________________________________________________________ ##THE FOLLOWING IS ONLY HALF TRUE Here is my micro case study on stock market share price inflation. I will use the company Apple as an example, using figures for The last day in December 2017. Apple's total shareholder equity is $140,199 [1] ... this is it's assets minus it's liabilities. Apple has 5,126,201 [1] shares outstanding ... this is how many shares in the company Apple, someone other than Apple owns. If we divide 140,199 by 5,126,201, we get the actual worth of the shares: $0.027. Now take a look at the confidence value of the share ... on 12/29/2017, it opened at $170.52 [2]. This means the real to inflated value of Apple is 1:6315.56. On average, apple has paid out $1.3 per year and per share in dividends. This means, if you bought a share at the cost of $170.52, you would have to wait ~130 years for the dividends to match the cost of the share. Shares, therefore are almost entirely based upon market confidence alone, they are known as a type of 'ficticious capital' [1] http://investor.apple.com/secfiling.cfm?filingID=320193-18-5&CIK=320193 [2] https://www.nasdaq.com/symbol/aapl/historical [3] https://www.nasdaq.com/symbol/aapl/dividend-history #READ BELOW WHY The average dividend yield, which is the dividend per share divided by the price per share is around 2.4% for the FTSE100 [1]. If we divide 100 by 2.4, we can work out that it will take approximately 40 years to earn back the money in dividends. If the average life span of a company is ~15 years, it is entirely possible that you will never get your money back through dividends, that is, unless you rely on speculation. [1] http://siblisresearch.com/data/ftse-all-total-return-dividend/ ____________________________________________________________________________________________________________________________________ When shares are sold by the company, the ficticious capital is converted into financial capital in the form of real money. A business can make money simply by selling shares. A good way to maximise the hysteria (or confidence) surrounding your shares is to gradually reduce the worth of the subsequently issued shares. In order to maintain control over your public business, you will have to own over 50% of the shares. Below is pseudo code for issuing n shares to Person. Issue_Shares(Person, n){ Is there anyone with shares? No Owner gets n + 1 shares Person gets n shares Yes Each give each stockholder n extra shares Give Person n shares OwnerShares += (Number_Of_External_Shares + 1) - Number_of_Shares_Owner_Already_Has } ___________________________________________________________________________________________________________________________________ Issuing dividends follows a similar process, take the total worth of the company (assets - liabilities), and create a percentage of the worth you wish to pay out in dividends. Pay out the dividends each time someone buys new shares, or at a longer timespan depending. Pay_Dividends(worth, percentage) { totalToPay = (percentage/100) * worth payPerShare = totalToPay/numberOfShares for each person holding shares pay_Person(numberOfSharesPersonOwns * payPerShare) } Pay_Dividends(assets-liabilties, 50) _____________________________________________________________________________________________________________________________________ Return = (Ending price - Beginning price + Dividends) / (Beginning price) = ($90,000 - $75,000 + $2,500) / $75,000 = 23.3% percent. If this percentage is negative do not sell, and do not continue with the rest ... Inflation = (Ending CPI level - Beginning CPI level) / Beginning CPI level = (721 - 700) / 700 = 3 percent Inflation-adjusted return = (1 + Stock Return) / (1 + Inflation) - 1 = (1.233 / 1.03) - 1 = 19.7 percent If this percentage is negative do not sell.