>Something I've never been able to figure out is how
>stocks prices are supposed to be related to the
>performance of the company. The only explanation I've
>heard that makes any sense is that stocks are
>essentially claims on future dividends and hence their
>value is the discounted value of those future
>dividends. It seems to me that there are several
>problems with this explanation.
CSenior is exaggerating when he says that you're 30 years out of date with efficient market theory; 10-15 is probably more accurate. I don't know what they're teaching in business schools now, though.
But in any case, you could use earnings per share instead of dividends in your valuation model. Even 5 years after the Nasdaq crash, people still scorn dividends at the expense of earnings. Of course, no one knows what future earnings will be, so the models are pretty useless, but that doesn't stop people from using them.
Doug