I had the following email sent to me by a younger relative. I...

I had the following email sent to me by a younger relative. I know how I view it all, and I'd love to see how others view it too. Here's the email;

I am still trying to work out why people invest in the stock market, particularily in non dividend paying stocks. The thing that does not make sense to me is what drives someone to buy into one of these penny stocks. Apart from just saying to sell it for a profit, there must be a mechanism by which this profit must materialise. Say you put 10k into a new mining company that won't start mining for another 2 years. Sure, you own a share of this company, but you will recieve no income for a mighty long time, quite possibly never. You can't take any amount of end product or capital that the the company holds, to show for your 10k. In the event of an economic downturn your investment may become worthless very quickly. What then do you own? If this company starts to become successfull and appreciates in share price, what has changed? You still have no right to take capital or end product out.

More to the point, if this company starts to become successfull, and say it has just started mining, but the share price falls due to economic uncertainty, what then? What's to guarantee it will be re-rated accordingly? What will compell someone to buy into an undervalued stock because it's undervalued? You yourself have told me there are many companies that are undervalued. What's to say that they will ever trade at their true value? Particularily when everyone is exiting the stock market?

All in all, why should someone buy into a company that has alot of cash on hand, or great resources in ground, or mining heaps of valuable elements? You won't see this money, as it gets invested back into the company to do more of the same.