The Stock Market and its Valuation

Something has been bothering me lately. I'm usually one to try to find answers by myself, but this is something I have not been able to figure out. Since it has the potential for sparking debate, the Political Palace's purpose, and might be a somewhat more "serious" subject, thus, in theory anyway, more suited for the Political Palace, I've decided to post it here instead of General Discussion. Here goes:

Originally, the stock market was created to allow the trading of securities, primarily in the form of shares in corporations. This much is still true today. However, back at its inception, the valuation of a particular share was essentially determined through the potential for return, not so much in raw profit from the corporation, but in the actual money it paid out to the corporation owner's, the shareholders; in other words dividends. So far so good, a share's price is determined by just how likely its owner is to get money out of it, and how much. The mechanisms of capital gains are easily enough derived from this, coupled with the laws of supply and demand: the more a share is likely to earn its owner, the more others will want it, and the higher the price to acquire it from someone who currently owns it. This much is perfectly understandable for me.

However, moving to a more modern setting, there is a fairly noticeable difference: quite a few corporations have decided to pay next to nothing in term of dividends to their owners, while a fair number of them have outright abolished the entire concept. Now this is where I seem to have trouble: where does the valuation of shares, or even more fundamentally, their intrinsic value come from? One could say that their valuation comes from the demand for the share by the market. Fair enough, but why would the market, or in other words, investors, want shares if the only reason they are valuable are because other investors want them? Since no dividends are paid, the corporation's performances have no direct effect on the share prices through the amount of dividends paid, and this cannot be used to determine a share's value. It seems to me that the only possible explanation is that the value of those shares depends merely on the will of "investors" to put their resources into concepts loosely tied to actual corporations and their creation of wealth, through the moods of the market and its perception of a particular corporation. If this is truly the case, then the stock market appears to me as a sort of grand casino where money can be extracted for the casino's, and the corporations', purposes, through initial public offerings, but never actually given back to those who invest at any particular moment in time.

Hopefully I'm wrong, after all I have no formal background in economics or finance, but I'd still like it if someone could tell me juste were does the value of a particular stock, fundamentally, comes from.

Jam it back in, in the dark.

Originally Posted by How Unfortunate

So then where should one be putting their money these days?

Gold bars, I suppose, though in the post-apocalyptic future gold probably won't have that much value. Just start stockpilling barrels of oil and derived product. You'll need it to power your rusted death-dealing car.

Anyhow, I'm actually happy with the response to this thread so far. I'll have to admit I was somewhat drunk when I made it, as I am right now, but what I was wondering are legitimate questions I'd been trying to answer for some time. One of the possible explanations for the valuation of stocks I'd thought of but left out on purpose in my original post was that of the actual power ownership of a company gives in term of choosing its top executives. I really wasn't entirely sure this was a valid justification, but now that some people have suggested the same on their own, it becomes more plausible as an answer.

Anyhow, please keep it up, the discussion so far is really insteresting.

There's nowhere I can't reach.