Hence investors' obsession with earnings figures. Higher earnings
rarely translate into higher dividends. But earnings - if not fiddled -
are an excellent predictor of the future value of the firm and, thus,
of expected capital gains. Higher earnings and a higher market
valuation of the firm make investors more willing to purchase the stock
at a higher price - i.e., to pay a premium which translates into
capital gains.
The fundamental determinant of future income from share holding was
replaced by the expected value of share-ownership. It is a shift from
an efficient market - where all new information is instantaneously
available to all rational investors and is immediately incorporated in
the price of the share - to an inefficient market where the most
critical information is elusive: how many investors are willing and
able to buy the share at a given price at a given moment.
A market driven by streams of income from holding securities is "open".
It reacts efficiently to new information. But it is also "closed"
because it is a zero sum game. One investor's gain is another's loss.
The distribution of gains and losses in the long term is pretty even,
i.
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