What If No One Ever Sold Even One Share of Stock?

If every investor only bought shares and never sold them, the stock market would always rise.

What If No One Ever Sold Even One Share of Stock?

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Think of this for a moment; If every investor only bought shares and never sold them, the stock market would always rise and provide ever-increasing capital gains to everyone.

Dividend investors could count on an ever-increasing amount of dividends with no threat to dividend cuts or eliminations. This ideal world would be the cure for inflation.

It's All About Confidence

In a certain sense, the stock market is a confidence game like any other.

Going for the Gold

Take gold. Though it has some legitimate commodity use cases, as in gold jewelry, it retains a modicum of confidence based on thousands of years of belief in its inherit value, especially when other assets go sideways or fail.

Ephemeral Assets

In the same vein, today's digital assets like Bitcoin encompass similar qualities to gold. Because the creator of this ephemeral commodity has promised a finite supply in the future, some investors invest this asset with varying degrees of confidence. Never mind that it is highly volatile and can lose more than 30% of its value in a few days' time as it recently did. It is the confidence factor that drives its value, time and time again. After all, Bitcoin, after some 17 years of its existence, is still not used as a currency or accepted universally. So it has no inherent value. Central government printing presses working on overtime have undermined consumer confidence and investor faith in paper currencies. It is confidence or lack of it that underlies investor determinations of value.

The Value of Stocks

Shares of stock in the public markets, on the other hand, represent ownership of a tangible asset. That is, each share gives the owner a proportional share in the growth of said company. If the company pays a dividend, this means the board has confidence in the company’s ability to grow its income and has therefore decided to share a portion of the company's earnings in the form of a dividend payment. This allows investors to derive cash flow on an ongoing basis. They don't have to wait till some undetermined time in the future to sell shares to generate income.

When a company exhibits a pattern of earnings growth, investors bid up the price of its shares because ownership promises a share that will be worth more in the future. If the company can compile a record of consistent quarterly earnings growth, it will be worth even more in the future. Consistent annual growth will further buttress investor confidence and demand for its shares will grow commensurately, exerting upward pressure on share price as demand continues to grow.

Confidence in future performance and consistent demand drives prices higher. This is economics 101, supply and demand. Restricted supply of shares with increasing demand for those shares will exert upward pressure on prices. As long as a company does not dilute current investors with the issuance of too many additional shares, out of proportion to its growth, this relationship will hold.

Punctured Confidence

What happens when confidence wanes? A significant rise in unemployment and unemployment claims will signal a possible recession on the horizon. In this instance, confidence disappears like the air escaping from a popped balloon. A great number of investors will head for the hills. They'll sell their shares fast and ask questions later. This is exactly what happened in the markets over a recent three day period. The S&P 500 index had been ahead around 13.5% for the year. Before the panic had ended and the smoke cleared, it was ahead just 3.5% and had suffered an old-fashioned correction.

The degree of confidence in the economy and the values in the stock market itself are determinative of the outcomes of your invested capital. With strong confidence comes good results and capital gains. Weakened confidence will always bring poor results and capital losses.

Bottom Line

If it is your goal to grow your income and capital for a secure retirement, make it your business to spread the word. Evangelize to anyone who will listen. Speak to family, friends and associates at work. Tell them to have unending confidence in the U.S. economy and the stock market. Advise them all to buy shares and become owners in the greatest economy on earth. And, don't forget to tell them, never ever sell a share of stock. If you want your capital and income to grow to afford a pleasant and comfortable retirement, your future and theirs depends upon it. Never sell a share of stock.

You can depend on this; the stock market is a confidence game, like any other.

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Best,

George Schneider, M.A.

Founder and publisher

Retirement: One Dividend At A Time

Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.

Disclosure: I am long all RODAT Portfolio names. The Portfolio continues to build dividend income with reliable, dependable equities which have long histories of increasing the dividend.

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