Summary of The Purpose of a Company

In the end, stocks are ownership interests in companies. We can't emphasize this fact enough. Being a stockholder is being a partial owner of a company.

Over the long term, a company's business performance and its stock price will converge. The market rewards companies that earn high returns on capital over a long period. Companies that earn low returns may get an occasional bounce in the short term, but their long-term performance will be just as miserable as their returns on capital. The wealth a company creates—as measured by returns on capital—will find its way to shareholders over the long term in the form of dividends or stock appreciation.