Why do People Invest in Stocks?

One of the questions that really torment my mind is the one as to why people invest in stocks. Whenever I look at the dividends that various companies pay to their shareholders on an annual basis, I always come to conclusion that those sums are pitiable. Peanuts. You find a person who paid $100 per share being paid an annual dividend of $0.5 per share (for a whole year). And the company’s directors actually have the option of declaring that they won’t be paying dividends in a given year. Thus, I find myself struggling to understand why people opt to invest in stocks. This is in spite of the fact that I have the benefit of a business school education – I had to put this on record, before you start thinking that I am an ignoramus.

It is with that question in mind that I looked through the list of contacts I got at business school, to see if there is anyone I can get in touch with, for answers. And I was lucky to learn (through a friend of a friend) that one of my business school chums had established a stock brokerage. I felt that this was a person who could possibly give me a convincing explanation, for me to understand why people invest in stocks. So I scheduled an after-work appointment with him.

My meeting with the stock broker went well, over a drink of ale beer. But by the end of it all, I still hadn’t gotten persuasive answers to the question as to why people invest in stocks. The stock broker was trying to tell me that people invest in the stock market, not so much in pursuit of dividends, but rather, in pursuit of capital gains – as “the value of the stocks goes up with time”…

By the end of it all, I had become so bored that I switched the conversation to other subjects. I actually found myself, at some point, engaging the broker on the mundane subject of payroll accounting, and whether it makes sense to use the Securitasepay payroll solution. I let the conversation drift to that direction after coming to the realization that the stock broker too didn’t really have a convincing explanation as to why people invest in stocks. I realized that he too, was just a cog in the machine. In looking for answers from him, I was only torturing his mind.