There are quite frequently selling stockholders in addition to the company and the managing underwriter frequently works with a "Green Shoe" which is a form of over allotment which allows that syndicate manager to short stock against the box -- the box being the option he has to cover by buying additional stock from the company. It is that short position that allows him to support the market when an IPO gets off to a shaky start. Instead of exercising his option to buy additional shares from the company he executes in the market thereby bringing in buying power and covering his short; the cover is frequently at or a touch below the initial offering price.
To those that say trading is a 0 sum game...
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Markets reflect the economic capabilities of large companies. Large companies reflect the productivity of masses of humans. Masses of humans reflect human life. And human life (so far) has been accompanied by quality of life improvements:
We are living longer.
It takes less time to travel the same distance.
It takes less time to communicate over long distances.
Etc...
Hence, life is not a zero sum game. In the long run (so far), everyone benefits. Extrapolating this backwards, the markets are not a zero sum game.
Sure, on any given trade, there is a buyer and seller. I agree with the poster who says, at the instant of transaction, it is zero sum. At that instant, one party believes it is in their utility to sell while another party believes it is in their utility to buy.
Caveat: I say "so far" above, because although the last 100,000 years have shown a trend towards improvement of quality of life, nothing says this will continue ad finitum. Resources may be finite, they may not (for example, the Earth may create natural gas from reactions inside its core. Or it may not. Or it may, but not fast enough, etc.). Extra-earth events could occur which permanently diminish the quality of life on Earth.
We are living longer.
It takes less time to travel the same distance.
It takes less time to communicate over long distances.
Etc...
Hence, life is not a zero sum game. In the long run (so far), everyone benefits. Extrapolating this backwards, the markets are not a zero sum game.
Sure, on any given trade, there is a buyer and seller. I agree with the poster who says, at the instant of transaction, it is zero sum. At that instant, one party believes it is in their utility to sell while another party believes it is in their utility to buy.
Caveat: I say "so far" above, because although the last 100,000 years have shown a trend towards improvement of quality of life, nothing says this will continue ad finitum. Resources may be finite, they may not (for example, the Earth may create natural gas from reactions inside its core. Or it may not. Or it may, but not fast enough, etc.). Extra-earth events could occur which permanently diminish the quality of life on Earth.
I think that's true. Money supply and loan creation are largely responsible for net flows into markets. A 911 or Japanese Tsunami, people withhold from new investment/purchases and seek to liquidate existing assets to maintain expenses. This puts downward pressure on stocks and removes the bid. Just proves how illusionary most paper wealth actually is....
But I think Martin's point, outside of exogenous factors - a snapshot picture where inflows = outflows - stocks are zero sum. Minus commissions, dividends and growth resulting from business capitalization, I'd agree with that.
As I said, if you include all the assets in the equation, it all adds up. It has to, by definition. The whole system has a balance sheet, so if assets were destroyed, a liability (shareholder equity) has to decrease.
Your 2 examples indicate GDP is not constant anymore. I am talking about if GDP is constant.
If Japan is having earthquake year after year, GDP will decline and there will be losers only.
If stock opens 10% higher day after day, you won't have a 3% GDP growth per year.
zero sum game is true when the whole economic pie is constant. If you are looking at a very short time frame, that is usually true.
The "market" isn't a self-contained system. Zero-sum concept has limited use as a descriptor for open systems.
Nor is it possible to determine aggregate gain/loss of a financial instrument until ALL trading, past present and future, has been accounted for. Since none of us can see the future, it becomes an impossible task.