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Nobody should Lose Money this Week
- Thread starter WD40
- Start date
Quote from HolyGrail:
Absolutely incorrect. The seller did not lose anything other than opportunity cost.
Trivially wrong. It is clear even to a kid that the seller gave up a stake in a company in exchange for needed cash and that decision must be evaluated with respect to the performance of a widely accepted benchmark, for instance the S&P 500 index performance. If the seller did worse than the benchmark then the seller lost. If he did better then the buyer lost. Simple zero-sum game.
In finance, money is NOT only cash, it includes securities, loans, credit, time value of money, etc and performance can only be measured with respect to an accepted benchmark.
Ron
As I wrote earlier, I don't think that opportunity cost figures into the calculation of zero sum. What you are saying is interesting, but it is beyond the scope of the concept of zero sum as I believe it is generally understood. In any event, your point may be moot. The guy who issued those shares had to do so in order to raise cash to run his business. If he had not sold those shares, he would not have raised the cash to get the company going, or keep it going, in the first place. And don't say that he should simply have resorted to debt financing, because lenders typically want to see a fair amount of equity before they plunk their money down. You are adding variables that I think obscure the original premise of the term zero sum as it relates to the markets insofar as trading is concerned.Quote from ronblack:
Trivially wrong. It is clear even to a kid that the seller gave up a stake in a company in exchange for needed cash and that decision must be evaluated with respect to the performance of a widely accepted benchmark, for instance the S&P 500 index performance. If the seller did worse than the benchmark then the seller lost. If he did better then the buyer lost. Simple zero-sum game.
In finance, money is NOT only cash, it includes securities, loans, credit, time value of money, etc and performance can only be measured with respect to an accepted benchmark.
Ron
Quote from Thunderdog:
You are adding variables that I think obscure the original premise of the term zero sum as it relates to the markets insofar as trading is concerned.
I didn't add any variables to the game. I just proposed that profits/losses are evaluated based on benchmark returns. This is nothing new and it is how people in the fund industry do it all the time.
I found this website that IMO puts the issue on a correct foundation:
http://www.ittybittycomputers.com/Essays/0SumGame.htm
Ron
Interesting that you should refer to Larry Harris and his book, Trading and Exchanges. I just ordered it the other day and am expecting delivery by Tuesday of next week. I expect it will be a good read. Perhaps my views will change after reading the book later this summer, but at this point I think it will require a shift in context or definition for me to agree with you. At least for the moment, I will continue to regard the futures market as zero-sum and the stock market as potentially, but not necessarily, zero sum. If I'm wrong, it certainly won't be the first time.Quote from ronblack:
I didn't add any variables to the game. I just proposed that profits/losses are evaluated based on benchmark returns. This is nothing new and it is how people in the fund industry do it all the time.
I found this website that IMO puts the issue on a correct foundation:
http://www.ittybittycomputers.com/Essays/0SumGame.htm
Ron
Quote from Thunderdog:
Interesting that you should refer to Larry Harris and his book, Trading and Exchanges. I just ordered it the other day and am expecting delivery by Tuesday of next week.
I'll do the same. I have read great reviews. Maybe we should continue after reading it. Regardless, the book is about things every serious trader must know and understand.
Ron
Quote from Stealth Trader:
Your "thought process is flawed. The stock market is not a zero sum game and opportunities are what you make them out to be.
WD is correct.
st
Your correct, his thoughts are flawed and the market is not a zero sum game, it is in fact a NEGATIVE SUM GAME. Each time you make a trade you pay a small spread, you pay a commission, you pay for data, you probably have newsletters and whatnot you subscribe to. So, the market is not a zero sum game, its a game in which money is taken out, ie a negative sum game. It depends upon a continued flow of money (suckers) bringing in more and more investment to it for the "great game" to continue.
Quote from Brandonf:
Your correct, his thoughts are flawed and the market is not a zero sum game, it is in fact a NEGATIVE SUM GAME. Each time you make a trade you pay a small spread, you pay a commission, you pay for data, you probably have newsletters and whatnot you subscribe to. So, the market is not a zero sum game, its a game in which money is taken out, ie a negative sum game. It depends upon a continued flow of money (suckers) bringing in more and more investment to it for the "great game" to continue.
It's called the "wealth out effect" and the government participates in it also with capital gain taxes etc.
I can't believe there are people around who vigorously defend the absurd position that stock trading is not a zero-sum game (it is indeed not even zero-sum but a negative sum).
I am sure the brokerage industry does not like people to realize that. Some poor souls think that wealth is created out of thin air through stock transactions.
Ron