Would You Buy Microsoft for $1?

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Of course you would, even though some economists think that might be a mistake.
Bob Murphy explains why.

Suppose that everyone on the Earth except you, dear reader, refused to believe that Microsoft shares would ever sell for more than $1 as of tomorrow at the opening bell. The immediate consequence of this strange alteration in expectations would be, of course, an immediate collapse in Microsoft stock. Even though its stock might currently be trading for $28.50, those owners would try to unload their shares before the market closed today. But if everyone except you, the reader, believed the price would be at most $1 by tomorrow morning, they wouldn't offer very much for the shares today. Some transactions might occur at intermediate numbers in the mad race to the bottom, but very quickly (once everyone realized everyone else thought the same thing) Microsoft stock would be trading at $1 or less.[3]
Now in this insane scenario, what would you, dear reader, do? In a famous chapter from the General Theory, John Maynard Keynes argued that the stock market (at least in its unregulated form) was a giant game of Musical Chairs (capitalization in the original). He implied that in our Microsoft example, you would be rendered a capitalist Cassandra; even though you would know that Microsoft really "should" be priced above $1, it wouldn't pay for you to purchase it, since everyone else's ludicrous beliefs would make their predictions come true. Keynes would argue that, ironically, you too shouldn't offer more than $1 for the stock, since you would never be able to find anyone to buy it back from you (at an even higher price) in the future.
As with most of the clever arguments in the General Theory, this one too is dead wrong. If (by hypothesis) nothing had changed with Microsoft's underlying business prospects, then you would certainly do well to purchase the stock and gain access to the flow of dividend payments issued periodically by Microsoft. Indeed, one standard definition of the "correct" stock price for a company is the present discounted value of its future dividend payments. Even if we changed the absurd story away from Microsoft, and to a company that historically has never paid dividends, it would still make sense to buy ownership in a profitable company at rock-bottom share prices. For one thing, the board of directors might change the dividend policy (in light of the crazy behavior of traders regarding its stock).

The Social Function of Stock Speculators [Mises.org]

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