I have a question which has been bugging me for a while, hoping to get some thoughts from those who know more about shares.
The question is, what actually gives a share its value? Initially, my impression (before I actually bought some shares) was that dividends were what gave the shares value. Makes sense, in the same way that interest gives a term-deposit value. However, it appears that a large number of shares have no dividend. Also, major shares which do have dividends often have negligible returns - often less than inflation.
So of course the only answer to this is 'the value of shares comes from the potential capital gains'. This I cannot understand, although it does appear to be the main reason people buy shares. When one gets capital gains, it is typically because the asset becomes more valuable. As an example, I buy an ounce of platinum, changes in industry cause increase demand for platinum raising its value. Or as another example, I buy a house, people decide to move into the neighbourhood, increasing demand for the house, raising its value.
However I cannot see the way in which a share without a dividend has any underlying value, in the same way that a house has value or a pound of rice has value. It seems that the value is purely manufactured by the bidding process, and that the only 'capital gains' that are possible come from those bidding up the price in search of capital gains (a circular process).
Please enlighten me, I am very lost