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Author: TheOldTimer Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6881  
Subject: Why Buy Stocks? Date: 2/16/1998 3:35 PM
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Thanks for the debate. Here is Randy Befumo's response to my question of why to buy stocks:


I would refer you to the first part of "How to Value Stocks" for a more
detailed explanation, but the basic gist is that a share of stock represents
proportional ownership in the actual economic output a company, complete with
a proportional vote. That economic interest is what anyone interested in
owning the business would need to buy, whether they be private investor, buy-
out firm or another company.

Why would anyone want to buy a company? Although in practice most companies
reinvest the vast majority of their earnings, in principle should a majority
of sharehoulders vote to distribute all earnings to shareholders in the form
of dividends as well as liquidating all assets of the business and
distributing those as dividends, this could happen which is where the shares
value is ultimately derived from. When one company acquires another, for
instance, what they are acquiring is this stream of cash which falls under
their control.

Regards,
Randy Befumo (grbefumo@leggmason.com)
Analyst, Legg Mason Funds (www.leggmason.com)
Legg Mason Fund Phone: 800-577-8589
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