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Why is the stock market so obsessed with growth?
Forgive my ignorance of economics, but the growth paradigm just seems like an endless game of 'move the finish line', punishing any business model aimed at sustainability rather than expansion. Can someone please explain from a theoretical and practical standpoint why growth is such an important valuation tool? Is it just greed? Or is it the very bedrock of capitalism in some way I don't understand?
Thanks.
8 Answers
- mscLv 61 decade agoFavorite Answer
In order for investors to make money, stock prices have to rise. And the force that causes stock prices to rise in the long run is increasing corporate profits. A public company is under extreme pressure from its shareholders to make more and more money each year.
Mainly, it's greed, but not all greed is bad. Investors serve an important purpose, and they deserve to make a living through their efforts.
Perhaps you're right that sustainability should be favored over expansion. But sustainability can't be measured nearly as easily. Nobody really knows what's sustainable and what isn't. But everyone can measure growth.
Source(s): I'm not a student of economics, but I have my own views, which may or may not be consistent with what the experts believe. - Anonymous1 decade ago
lol you seem to be a philosopher of some sort
The answer is: for the same reason anyone strives to improve oneself in any domain of life. If you're being complacent, sitting at home and not doing anything, you will not improve yourself beyond who you are at that moment (you're not doing yourself a favor - in terms of health, money, social life, etc. nor others a favor - you're not producing anything for society).
Likewise, if a business doesn't grow, it isn't offering its stakeholders (including society in general) anything extra. If you remain a small barber shop with 2 employees and do not work more or expand in any way, you will not offer customers extra service, and nor will you make extra profit (not that this is bad, maybe you enjoy your salary and working hours as they are).
If Apple would not have strived to outperform competition, we wouldn't have the iPhone, iTouch, iPad, etc. (which all revolutionized technology) - just as a an example. You could take this example to any other industry as well.
It's a dog-eat-dog world. You work harder, you make more money, more goods/services are created, both in the short-term and long-term. If you sit and do nothing - like I already mentioned - you're not doing anyone a favor.
- fritya56Lv 61 decade ago
nobody understands , we've had a long period of limited or no growth even recession , the boys at the top have indicated to go for growth so they are pushing for it , stock has been stagnant and interest rates for savers low , hold onto your hat interest rates are going up and so are stock prices in certain areas , sustainability is and will continue if modelled on that line with more profit being reinvested hopefully .
- RaysorLv 71 decade ago
Growth is what investment is all about. Unless you completely want to trash our capitalist society, that's it: Growth. What would you be doing if you ran your own business? Trying to make it grow obviously.
Even an apple tree. You buy a young tree, feed it, nurture it, prune it and let it grow until it fruits and each subsequent year the crop (dividend) grows.
- 1 decade ago
Growth = more money! The more shares out there the larger the opportunity to make people rich!
- exactdukeLv 71 decade ago
People invest in the market to make money. If the stock market doesn't grow, your investment doesn't grow. And if there is no growth, and no increase in their (people's) money, why would anyone invest in it??
To me, your question and the answer seems obvious.
- Anonymous1 decade ago
The universe is expanding. You are either expanding or contracting. Now, that's a very simplistic, even dumb answer. Or is it a very metaphysical answer?
- Anonymous1 decade ago
"obsessed "....Like....MCI-Worldcom and Enron....."ask why"