Stocks Should Go to Zero

Discussion in 'Economics' started by Lucias, Sep 5, 2011.

  1. Lucias


    In economics class, if I remember, that the long term profit rate of a company should be zero. I mean that in an efficient market that a company should not be able to make a profit beyond paying its employees and covering its cost -- if I remember.

    If this is true then wouldn't that imply that the long term return for a company should essentially be zero or the no more then the value of the physical resources. One can see this, for example, when a second mover product comes out and increases competition, i.e in the tablet space, game consoles, etc.

    How does one reconcile this idea that the long term return for company should be zero with the idea that the stock market should always keep growing, i.e stocks for the long run?

  2. Stocks Should Go to Sub-Zero and the all the way down to absolute zero!
  3. zigzag


    Markets are not efficient
  4. Lucias


  5. Expect nothing more than dividend + inflation from stocks if you are a long term investor.
  6. Even in theory, cost includes the cost of capital, which is usually a couple hundred basis points or so above the risk-free rate. Voila, there's your returns.
  7. moonie


    Perhaps you should have paid more attention in economics class. I think what you're referring to is Obamanomics, where companies exist for the sole purpose of paying more taxes to enlarge the size of government.
  8. Bunch of bs that has no bearing on reality. You may have a future as an EliteTrader moderator though.
  9. that the long term profit rate of a company should be zero.

    Hmnnn.. sounds like the post office, or Amtrack or gov't housing or off track betting. Of course non of these are public traded cos.

    Oth, this does sound like hollywood where no movie makes any money, any and all profit is reduced by an expense.
  10. There are no "growth companies"... only "temporary growth phases".

    Ashes to ashes, dust to dust.
    #10     Sep 5, 2011