zero sum game?????????????

this is a structural issue.

it is NOT a matter of opinion.

if the stock market WAS a zero sum game, then for every dollar of wealth built in the stock market since 1900 (for example), a dollar was lost.

this is clearly not true.

similarly, the NATION is far far far far far richer than it was in 1900 (both on a per capita basis, and on an absolute basis)

the entire edifice of capitalism is based on a very simple fact - wealth is CREATED. it is not zero sum. neither is the stock market.

" disagree, every share issued by the company is technically a short position since all outstanding shares are a liability to the company."


false. this is false as a matter of economics, and accounting.

it is not a liability. a stock is a PORTION of the company. a BOND is a liability. if i buy a bond, i am loaning money to the company. what they owe me is a liability. if i buy a share of stcok, i am literally buying a piece of microsoft. if microsoft grows wealth, the stock goes up (with of course some wiggles in between due to the market finding value).

the idiocy here is amazing.

what was microsoft worth in 1985? what is it worth now?

the entire edifice of capitalism is based on this - WEALTH IS NOT ZERO SUM

it can be grown (or diminished)

clearly, we GROW wealth. you can measure comparative income quintile wealth ownership now vs. 200 yrs ago.

this is so amazing that people think the stock market is zero sum

it is not. nor is our (or any ) economy.

look at yield per acreage. we have FAR FAR FAR more yield per acreage than we did 150 yrs ago.

so, when (various) inventions and technological improvements came along that increased yield per acreage, wealth was grown, for every farmer that owned farmland. that is not zero sum.

nor is the stock market

i trade futures for a living. futures are zero sum. this says nothing about whether you can make money or not. clearly, i make money. but the structure of the market is necessarily different than the stock market.

this thread is either a bunch of ignorant trolls, or just ignorant people.

its a structural issue. it is no more a matter of opinion than any other fact.
 
"This can get wrapped up in semantics so lets not go that far. But, i stand by my contention that new wealth is not created unless a TOTALLY new SOURCE is found."

it's not semantics.

it's your complete lack of understanding of how economics works.

wealth can, and is created.

simple example: there have been numerous inventions that significantly increase yield/acreage for various crops.

(example for illustration. #'s for demonstration purposes)

it is 1950. there are 10,000 soy farmers in the USA. the farmers own 100 million acres of soy fields.

soy is selling for $1 pound
each acre yields 1,000 pounds of soy.

so... the total wealth for soy farmers in the US is

100,000,000 (pounds)* 1 (dollar a pound) * 1,000 (pounds/acre) = $100 billion dollars.

lets say it costs $500 / acre to harvest, process, store, and get the soy ready for market.

so, the actual wealth in their fields is 50 billion dollars (cause half their "soy wealth") dollars are caught up in processing.

today, ABC Widgety Soy company has invented a more efficient method of harvesting soy.

it now costs 1/5 as much to harvest, process, store, and get the soy ready for market.

what has happened?

first of all, the wealth of the farmers has all gone up. they had to pay a cheap one time charge for the technmology, but their overall wealth is FAR improved, cause they are now getting FAR FAR FAR $$$ per acre, so they are now RICHER.

how about ABC Widgety Soy Company?

They previously were worth $5 / share based on the current market price, but now their revenue will increase 1,000 fold based on their sales of their new soy product.

BOOM, their stock now goes to $20 a share.

again, more wealth is created. they are worth more per share. the company does not OWE the shareholders any more $$$ (that liability thing was a crcok). but the shares are WORTH more, because the company is worth more.

Widgety Soy stock has 5% short interest. those people are stopped out at a decent loss. but those 5% of people lose money. the 95% of people who were long ALL are now much richer.

again, wealth is created.

and this has cascading (multiplier effects) in the economy.

of course, soy prices now go down, to some extent, but now because soy is so much cheaper for us to produce, we are exporting more soy, and this creates additional wealth in the shipping etc. industries

and on and on and on it goes.

this is how wealth is created.

look at japan after WWII.

not a lot of wealth compared to Japan by 1990. why? innovation, wealth creation, etc.

go back to econ 101.
 
and as a corollary - this is why capitalism is so wonderful. because it produces incredible incentive for innovation. this is why we are so incredibly inventive, so innovative, and so much incredibly richer now than we were 100 yrs ago - both per capita and in total.

the stock markets are wonderful because they are a price discovery mechanism, a means of democratically allocating capital, and a way to get in on the ground floor of all kinds of wonderful businesses, that in turn can grow wealth for themselves, and for the stockholders, who are partial OWNERS of the company.

price discovery, two-way auction, wealth creation, etc. all wonderful (and not too complex) aspects of our economy.

the difference in futures is that they are not OWNERSHIP of part of a company, they are AGREEMENTS between two parties on OPPOSITE sides.

open interest can go up or down, but net long or short cannot. net long is always ZERO. net short is always ZERO in the futures market. cause for every contract CREATED out of thin air (which is what happens when open interest rise), there are two sides to that contract - one short, and one long.

this is not true in stocks.
 
Quote from whitster:

if the stock market WAS a zero sum game, then for every dollar of wealth built in the stock market since 1900 (for example), a dollar was lost.

this is clearly not true.
More...

Of course this is not true. But according to some your argument is a red herring fallacy. The counter-argument is that the issue is whether stock trading is a zero sum game and not whether the price of a stock reflects wealth created by the company that issued it.

According to those that support your argument, when someone sells a stock that eventually goes up there is no real loss but only opportunity loss. The opportunity loss is equal to amount won by the buyer but it is not the type of loss considered in the definition of a zero sum game. The seller of the stock does not have to cover his loss.

However, according to those that think the argument is red herring fallacy, the loser did cover his loss by selling his shares. The time that this happened by no means affects the nature of the zero sum game since time is not a variable in this game. This is a very simple argument and it is very hard to come up with a counter-argument at this point against the zero sum game of stock trading.

Personally, I have not made up my mind and I think I need to do some more research on the subject before I decide which side is correct.

Ron
 
Quote from madmunny:

could one of you academics who beleive the stock market is a zero sum game please explain this idea to me? I personaly think if you actually believe the market is a zero sum game you dont belong in it and should probably try to get a job as a university prof teaching theory and not actuality.

the way i see it...the only way it can be a zero-sum game is if every company in the market went bankrupt and became worthless and im pretty sure this wont happen.

maybe im wrong.....if i am please show me the error of my ways cause i am really gettin pissed off at all these posts i read where people state that the market is a zer0-sum game and if you can prove me wrong i can stop being pissed off at my percieved stupidity of you. :)
More...


It's worse. After you factor in transaction costs and lost opportunity cost, It's a NEGATIVE sum game. :D
 
Quote from whitster:

this is a structural issue.

it is NOT a matter of opinion.
More...



I deleted most of the hot air.

The gains you refer to in the stock market since 1900 is due to inflation + dividend payouts.

That's why value investors and dollar cost averaging ALWAYS come out ahead in the long run, not because of their investing acumen, but because they can collect the dividends. Just ask Warren Buffett. :D
 
Quote from bsmeter2:

I deleted most of the hot air.

The gains you refer to in the stock market since 1900 is due to inflation + dividend payouts.

That's why value investors and dollar cost averaging ALWAYS come out ahead in the long run, not because of their investing acumen, but because they can collect the dividends. Just ask Warren Buffett. :D
More...

Inflation? Say it ain't so,, but my house is really WORTH 80% more than what I paid 5 years ago becaues it prints me money like it's 1999. A bottle of coke really is worth 20 times more than the nickel it cost before because it tastes better, man. I hear they got a new formula. Don't worry inflation. Don't listen to the cynics who say it just costs more. Everything is really WORTH more these days,, it's just the way it is! Everybody wins!!
 
"Of course this is not true. But according to some your argument is a red herring fallacy. The counter-argument is that the issue is whether stock trading is a zero sum game and not whether the price of a stock reflects wealth created by the company that issued it."

this is not "my argument"

this is fact. most things here argued are opinion. this is not opinion. it is a matter of structure.

capitalism BUILDS wealth. not even the most ardent communist/socialist denies this, because there are decades of evidence to prove this point (they may argue it builds wealth at the expense of others, but that is another issue)

of COURSE, in the long run, the stock price reflects the wealth of the company. do you think MSFT is worth several HUNDREDS of times its initial offering price for NO reason?

or GE?

could the fact that GE owns practically everything (ok , that's an overstatement) have SOMETHING to do with it?

this is NOT opinion.

"According to those that support your argument, when someone sells a stock that eventually goes up there is no real loss but only opportunity loss. "

that's a strawman. i didn't make that argument.

cause that argument is irrelevant to the issue of stock market not zerosum game, futures market zerosum game.

"However, according to those that think the argument is red herring fallacy, the loser did cover his loss by selling his shares. The time that this happened by no means affects the nature of the zero sum game since time is not a variable in this game. This is a very simple argument and it is very hard to come up with a counter-argument at this point against the zero sum game of stock trading."

look, i will try to make this as simple as possible for people who do not understand the nature of economics, capitalism, or capital markets (e.g. you).

if you are a daytrader, the stock market generally SEEMS zerosum since you are engaged in the game of gaming others by trying to buy stuff low over the course of the day and sell it high.

for every low buy, there is a low sell, and for every high sell, there is a high buy. this creates the ILLUSION that it is a zerosum game, because for people flipping shares on an intraday basis there is going to be (roughly) a similar amount of $$$ won vs. $$$ lost (roughly).

that is complteely irrelevant to the structure of the market.

the fact that it is not (stocks) zero sum is a matter of structure. that it so happens that the overall bias is up, does not mean that over any given timeframe, we could not have more net losers, or more net dollars lost, than winners.

for example...

if over the next 20 yrs, the value of the entire market is cut by 90% - we will have more wealth lost than gained.

however...

this is totally irrelevant to the fact that its not zero sum

in a zero sum (absent commissions) there MUST be an equilibrium

it's like a poker game

it's a closed system. (zero sum)

the stock market is like a factory. it can grow wealth due to invention, innovation, marketing, cheating, whatever.

if the economy could NOT grow wealth, then we would have the exact same amount of wealth as a nation than we did 200 yrs ago.

do we?

the stock market is merely a proxy for part of an economy (those companies that are public). it is not zero sum

again, this is a structural issue, not one of opinion. it's not an argument.

i seriously suggest you get this concept into your head.

it is 100% irrelevant to your success as a trader, in the same way that you could have the mistaken impression that your vehicle actually runs by a bunch of faeries spinning your motor under the hood, and still be a successful race car driver. you just have to know how to DRIVE.

but you would still be laughably wrong, as is anybody who believes the stock market is zero sum.

if the stock market is zero sum, then so is the economy. and if u believe that, your idiocy is colossal
 
i'll give one last example...

you could open a stock market and have only ONE stock on the exchange.

lets call that ABCD company.

ABCD has an IPO at $50 a share.

1,000 shares.

ok. capitalization of the market is USD 50k

tomorrow, ABCD invents the cure for cancer.

ABCD stock is now worth $5,000 a share.

sure, some shorts lost money. some sold too soon and sold at $100 (when their limit offer was lifted upon the ramping up in response to the news). some traders tried to fade the up move at 4,000 and got stopped out at 4400.

groovy.

but what is the market capitalization NOW?

5million dollars

what was it yesterday

50 thousand dollars.

where did that extra 4,950,000 dollars come from?

it came from the BUILDING of wealth (in this case, through innovation).

ABCD is WORTH MORE.

price , the last traded price of any instrument, is merely OPINION. it does not necessarily reflect VALUE.

the whole purpose of the market is price discovery, and capital alloction - the price discovery/rotation etc. trying to FIND value.

in the gaming that goes on, some will win, some will lose. but it is necessarily true in any capital market that if you take out transaction costs (commissions, etc.) and $$$$ can be greater now than they were yesterday, it is not zero sum.

that is the fundamental difference between futures (where you don't OWN anything, except an AGREEMENT (that is why futures are called CONTRACTs, not SHARES) and stocks (where you own something)

in the case of a contract somebody HAS to have the other side of that contract.

in the case of options, you can't BUY an option unless somebody WROTE the option

if they WROTE the option, they are necessarily on the opposite side of the trade from you. they GET the premium. you paid it.

this is not true in the stock market. there does not have to be (and usually isn't, with the exdception of people who are short - who make up a small %age of outstanding shares) an OPPOSITE side to your POSITION.

there is an opposite ACTION to your action (if you bot, they sold), but not POSITION

that is the difference.

if all POSITIONS balance (as they have to in futures), then no wealth in the system is gained or lost based on a move in the price of the contract.

necessarily

but since all POSITIONS do not have to balance in stocks (people can be long X many shares from all sorts of different price points in MSFT without correspondign short positions at the exact same price points), there is not a zero sum balancing
 
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