Question

Why would anyone buy shares in a company that had no profits or paid no dividends? Some examples are Elon Musk's Tesla Motor, producer of electric vehicles, and his SpaceX, which produces and operates reusable rockets to transport items to the international space station. Are they dumb investors or really smart with vision of the future?

Answer 1

They are not necessarily dumb investors. Some investments might not yield significant returns in the short-term; however, they might yield huge long-term returns due to the high potential of these investments. For example, the demand for electric vehicles is still pretty low. However, in the coming one or decades, the demand will be much higher due to increasing concerns over fossil fuel usage, emissions, etc. and returns on this investment can yield very high future income. Firms such as Tesla Motors and SpaceX are highly visionary firms which are based on futuristic ideas. Therefore, returns may not be immediate. However, one the demand picks up in the medium to long-term, these firms would provide much higher returns than the average market return. Therefore, I think there are some smart and visionary investors who have more patience and who think in the longer-term.