Trading & the Zero Sum Game Debate

xelite777 said:
Yeah, right.

The S&P500 alone returned about 10% a year on average, since inception.

And here are the returns for the DOW JONES, since 1975:
http://www.1stock1.com/1stock1_139.htm

Please do your homework before posting, thank you.
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Sure S&P500 on average made 10% on average since inception?
You play with pros xelite777 so better watch out your numbers. Actually S&P (dividends included of course) made +5.5% since inception (source : BBG). Not so great, right?



And trading is not S&P500. Traders performance are negatively skewed, it means that few take it all.
Maybe if Warren Buffet is soooo rich with stocks, perhaps lot of people are soooo poor because of stocks.

Easy rules :
few winners (pro, real traders), lot of losers (naive "investors" and naive "traders" (like you maybe?)).
The more the game last, the more pro and real traders steal money from your pocket. So of course it is better that everyone thinks he can make at minimum 10% per year with stocks like Apple or Facebook!
 
Chris Mac said:
Trading is a negative sum game. This is casino.
Lot of losers give money to few winners. One big winner, the casino (broker).
Of course some losers could think they are winners because they had some luck.
But at the end, they give all to the broker and the winners.
And newbies arrive to replace the dead losers. Winners stay and enjoy fresh meat.

"On a long enough timeline the survival rate for everyone drops to zero. "
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There are stocks that can be positive sum provided the company has returned more money to shareholders via dividends than its total market capitalization. But this is clearly not the case for most stocks. Investors have in general paid more money than the returns they have received from dividends, which the industry calls "multiples expansion". Basically, if you haven't doubled your original investment from dividends, you haven't walked away scott free. Not doubling your investment from dividends almost feels like not paying down the mortgage yet, even if you have the keys to your house and still live in it. Its just not complete because the bank still owns you.

Also, we can only judge whether a stock is zero sum, positive sum, or negative sum, after the fact when the company goes bankrupt because we need to analyze the entire lifetime of the investment and sum all market participants. This clearly hasn't happened yet with many stocks either. If we can't analyze the lifetime of the investment, then we can't make a judgement from this. And we clearly can't analyze if the stocks are still trading.

So, it is entirely possible for people to keep throwing money at companies (even quality ones) at all time highs, and for those stocks to grow a few years to decades, and then for them to drop to zero and make net losers out of participants. Not likely, but possible.

Thats why its good to be in the middle man business. A lot of smart people play many of the middleman roles either as a broker or as a market maker. Some even become billionaires as part of that business like Thomas Peterffy and Ken Griffin. Or be a fees taker and salary earner like an advisor or hedge fund manager charging 2-20.
 
Inception is a tricky word.

Actual SP500 index is constructed in 1957. Data prior to that is S&P composite index (started with 90 stocks). Actual tradeable index is much later
 
scr12 said:
Inception is a tricky word.

Actual SP500 index is constructed in 1957. Data prior to that is S&P composite index (started with 90 stocks). Actual tradeable index is much later
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But he is right. The returns if you really count since inception of a Standard & Poor's total market index is not as spectacular whether it was from 500 companies or not.

But to that point, the S&P 500 has been changing throughout its entire lifetime. So there is huge survivorship bias here as they only pick the best and throw out losers and bankrupt companies, and this has constantly changed. Basically its an actively managed portfolio on a long term basis.

But, to that point, if you buy an index fund that tracks the index, those are your returns whether actively managed from the S&P's perspective or not.
 
Chris Mac said:
Sure S&P500 on average made 10% on average since inception?
You play with pros xelite777 so better watch out your numbers. Actually S&P (dividends included of course) made +5.5% since inception (source : BBG). Not so great, right?
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The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%. It's almost twice the percentage you gave! : http://www.daveramsey.com/article/the-12-reality/lifeandmoney_investing/

The problem comes from the fact that you (conveniently) "forgot" to re-invest the dividends.


Traders performance are negatively skewed, it means that few take it all.
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Where did you get those statistics, Mad Magazine?

Maybe if Warren Buffet is soooo rich with stocks, perhaps lot of people are soooo poor because of stocks.
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Hahahahahaha :D
 
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