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

Wow, I can't believe it took 16 pages of this BS before someone was smart enough to figure out that stocks pay dividends. It amazes me how so many so called traders have no clue how the stock market works at all. I guess that makes it easier for me to make money :)

It is not a zero sums game. Success companies make profits from selling goods and services. These profits are then payed out to share holders in the form of dividends. This means money is coming in outside of people buying and selling shares and it is not a zero sums game.

In 2004 Microsoft paid a $32.6 billion one-time dividend, the S&P 500 paid a total of $213.6 billion in dividends during 2004. This is all money coming in from the outside.

Futures are a zero sum game if you include all market participates but not all market participates are not traders. Companies use futures contracts to hedges and lock in prices for commodities that they use. I don't know anyone has ever tried to figure out if hedgers are net losers or winners in the long run. Unless they break even, futures trading is not a zero sums game for traders.
 
I'll agree when wealth is created it is not a zero-sum game, and wealth is created over the long run, so over the long run the stock market is not a zero sum game.

But over the short run, if the markets are flat or down in a time period then isnt wealth stagnant or diminishing..creating a negative sum game after fees?
 
stocks are priced lower as function of the dividend amount from ex-dividend as long as trader is stockholder on record before ex-dividend date.. assuming all things equal from yesterday to today's ex-div date, a $1 quarterly dividend subtracts $1 off the stock price.

there is NO SUCH THING as free profits off dividends in the stock market.

also, whoever was arguing about recouping losses via dividends over time, if a stock is priced $25, and company distributes $1 dividend per year, you do not recoup all losses in 25 years via dividend for reason explained above. also, $25 per share acccumulated in dividends in 25 years is not worth the same as today because of inflation. on top of that factor in tax.

Quote from Matt8200:

Wow, I can't believe it took 16 pages of this BS before someone was smart enough to figure out that stocks pay dividends. It amazes me how so many so called traders have no clue how the stock market works at all. I guess that makes it easier for me to make money :)

It is not a zero sums game. Success companies make profits from selling goods and services. These profits are then payed out to share holders in the form of dividends. This means money is coming in outside of people buying and selling shares and it is not a zero sums game.

In 2004 Microsoft paid a $32.6 billion one-time dividend, the S&P 500 paid a total of $213.6 billion in dividends during 2004. This is all money coming in from the outside.

Futures are a zero sum game if you include all market participates but not all market participates are not traders. Companies use futures contracts to hedges and lock in prices for commodities that they use. I don't know anyone has ever tried to figure out if hedgers are net losers or winners in the long run. Unless they break even, futures trading is not a zero sums game for traders.
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"The poor in the US may be fatter for the first time in history, but that does not change the fact that there are more people living under the poverty line in the US than the total US population some 100 years ago."

that is irrelevant because the "poverty line" is a relative measure. it also is silly because the poor are not measured on a per capita in the above statement.

certainly, the poorest 20% of our population now are richer than the poorest 20% were 100 yrs ago.

because wealth overall has grown, it has also grown within all quintiles. that is again statistical fact.

a "poor" person in the US would be considered rich in most 3rd world countries.

by any measure you could think, the US has grown significant wealth
 
Winning traders can only profit to the extent that other traders are willing to lose. Traders are willing to lose when they obtain external benefits from trading.

If I want to buy GOOG and nobody is willing to sell any stock; I can't profit. For me to have a chance at a profit somebody has to sell me some shares because they feel a benefit. Opportunity cost is easily quantifiable after the fact.

If I sell a stock at $2 and now it's at $6, my opportunity cost was 6-2. Zero sum can only be calculated after the fact.

My advice is pick up the phone and call some extremely successful traders. Ask them this question...

What situation causes you the most anger in trading?

I guarantee you the answer you will get is...

When I sell out of a position and then it rips higher or vice versa for shorting.

Zero sum has many interpretations. My definition includes opportunity costs because after you trade for many years you realise these were your most expensive costs. An analysis of trading without inclusing opportunity costs is like a Football team only analysing how many points they scored and ignoring how many points they gave up.

Most of you will disagree with me but that actually brings me happiness. If 95% of traders didn't disagree with my trading decisions on a daily basis I wouldn't be able to make a great living from this game.
 
In 1950 the S&P was at 16 points. The index grew from 16 to almost 1300 today.
Doesn't this mean that the market capitalisation of the companies in the index grew form 16 to 1300? Or in other words that over all these years the surplus in market capitalisation proves that it is not a zero sum game?

I think this is true for stocks but also for S&P futures. Because S&P futures are the result of the value of the stocks in the index. The underlying value from 1 point in the ES grew form 16$ to 1300$.
If you could have bought 1 contract in 1950 it would be worth now 81 times it's original value.

The only thing that still has to be taken in account is slippage and commission.

For every winner there doesn't has to be a loser. If A buys Google at 85 and sells at 110, A made money. If B sells at 250 he makes money too. So in that case there is no loser.
To make a correct calculation one shpould accumulate all the profits and all the losses and deduct one from the other. If the resul would be negative than you can speak of a zero (or negative) sum game. But as long as the actual price is higher then the initial price, the sum of all profits and losses will be positive, because the netto move was up.
 
Spike,

I agree that the stock market is not a zero sum game. But I think it is different in the futures. There trader A can only buy a contract when there is another trader B who takes the other side. So when A is winning then trader B is loosing cause B is still in the game/market.

In the stock market trader B can sell his stocks and is out of the market. So B will not be affected by rising stock prices(except you took a short).




Quote from spike500:

I think this is true for stocks but also for S&P futures. Because S&P futures are the result of the value of the stocks in the index. The underlying value from 1 point in the ES grew form 16$ to 1300$.
If you could have bought 1 contract in 1950 it would be worth now 81 times it's original value.

The only thing that still has to be taken in account is slippage and commission.
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spike, you are correct about the stock market but wrong about the futures market.

i will explain this again. there is a very significant difference between futures (and options for that matter) and stocks. i have already explained this, but you need ot keep rereading this, and/or read up on futures because if u think futures are not a zero sum game, you don't understand futures.

a stock represents ownership of a company (a portion thereof)

a futures contract does not. a futures contract is an agreement, a binding one.

for EVERY long futures contract, there is a short futures contract to offset it. ditto for options. somebody WROTE the call or put you bought. futures aren't written, but they necessarily have an offsetting futures contract. they have to. by their nature. that is not the case with stocks.

futures have somehwat of a different purpose than stocks. futures are used for - speculation, for hedging, but essentially they are the ultimate price discovery mechanism FOR the underlying entities they represent. they are pure supply/demand vehicles.

futures are symmetrical. that is what makes them zero sum (less than zero sum whne including commissions, but let's spare that complexity for now).

stocks are not symmetrical

THAT is the difference

again, if u think futures are not zero sum, you need to read up. it is not arguable. it is definitional at the most basic level.

futures contracts can be created out of thin air, because they don't represent a portion OF the S&P, Dow, etc. they represent two opposing parties making an agreement regarding that underlying basket of stocks.

futures also, unlike stocks, have to be rolled over, since futures contracts have an expiration, etc. but that might make the issue even more complicated for you.

of COURSE you would participate in the growth of the economy by being long the futures from the past (assuming we are not talking about the Nasdaq from 2000 to 2005 ) :), but you ARE participating in a zero sum game in the futures.

you are not in stocks.
 
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