"The market", as measured by indices always goes up mostly because losers are weeded out of the indices and replaced by winners.
Another factor in why the concept is difficult to grasp.
Zero Sum Theory.
- Thread starter BostonTrader339
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"The market", as measured by indices always goes up mostly because losers are weeded out of the indices and replaced by winners.
Another factor in why the concept is difficult to grasp.
Scata,
after the quote is $19 to $20 maybe nothing happens. Maybe the quote stays that for eternity. Maybe it is changed anytime or not. Completely irrelevant for our example as there exists no "law" that it has to be zero in future. Yes, maybe it will be zero in the future, and maybe in the very near future. But that does not matter since it is of approx. the same probability that its price is higher than today.
The other way: Do you really expect housing prices to drop to 1900 pricing levels and even lower? No? Why not?
MK
after the quote is $19 to $20 maybe nothing happens. Maybe the quote stays that for eternity. Maybe it is changed anytime or not. Completely irrelevant for our example as there exists no "law" that it has to be zero in future. Yes, maybe it will be zero in the future, and maybe in the very near future. But that does not matter since it is of approx. the same probability that its price is higher than today.
The other way: Do you really expect housing prices to drop to 1900 pricing levels and even lower? No? Why not?
MK
Actually, there is such a law... the law of "entropy".
"Housing" prices won't drop to 1900 levels, but the price of each HOUSE will eventually drop to zero. (But this thread was about "equities". Not about housing nor "all things"..)
You've obviously been introduced to a concept new to you. Suggest you put on your thinking cap and marinate on it rather than trying to defend your current, flawed perception...
I don't want to argue, just a thought... Here's a concept which might help.... there have been HUNDREDS OF THOUSANDS of companies formed. We now have how many listed? What happened to the others and their "value"? Many have been rolled and merged into present companies, and their script is not yet played out. The rest have turned to dust.
> You've obviously been introduced to a concept new to you. Suggest you put on your thinking cap and marinate on it rather than trying to defend your current, flawed perception...
>> the law of "entropy"
Scata,
please do you and me a favour and do not become impolite and do not try to sound well educated when using thermo dynamics.
> the price of each HOUSE will eventually drop to zero. (But this thread was about "equities". Not about housing nor "all things"..)
Let us talk back again when your house-price forecast became true. Concerning the thread theme: Question was whether "Trading Is A Zero-Sum Game Or Not"? I have shown how the asset value of all shareholders changed when only one transaction takes place (recte, one trade was done). I am using house prices as example to clarify that the difference is in asset or derivatives trading. You can trade gold or any other asset you like.
By the way ("nor 'all things'"): You came up with the looong and boring story of decades of prosperity and crisis.
Regards.
MK
>> the law of "entropy"
Scata,
please do you and me a favour and do not become impolite and do not try to sound well educated when using thermo dynamics.
> the price of each HOUSE will eventually drop to zero. (But this thread was about "equities". Not about housing nor "all things"..)
Let us talk back again when your house-price forecast became true. Concerning the thread theme: Question was whether "Trading Is A Zero-Sum Game Or Not"? I have shown how the asset value of all shareholders changed when only one transaction takes place (recte, one trade was done). I am using house prices as example to clarify that the difference is in asset or derivatives trading. You can trade gold or any other asset you like.
By the way ("nor 'all things'"): You came up with the looong and boring story of decades of prosperity and crisis.
Regards.
MK
Until 2 years ago, the same was said for the 10 year period.
I think some of us may have missed the definition of "zero sum" according to the game theory, which was the point of the original post.
Excerpt from wiki:
In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.
Basically it is saying the pot only came from the chips brought by the players.
For the purpose of the game: you "lose" your money when you exchange your money for stock. Whatever that $x dollar amount it is. The party who sold the stock to you gain that $x amount. Until you liquidate your holding, then you calculate your realized gain (or may be loss) based on your purchase price.
In the case where a stock's price goes up and up and up: it is still a zero sum because the new stock prices are paid by the new players who bring in additional money to the pot. It is still a zero sum game - only that the pot gets bigger over time. Those who gain - their gain money come from the players who come to the game late. That's what it meant by zero sum. The stock price of X may well go to $10000 per share. If sold, the money needs to come from the new players who bring in new money.
(Now how does this universe gets more and more money over time? That's a different question.)
But I said upthread the equity market is not exactly zero sum (just slightly off) because of the reasons stated earlier:
1) Companies paying out dividends. These additional money did not come from new players. They come from the companies' earnings now distributed to the players.
2) The ever-increasing numbers of players who claim some of the pot money but did not bring money to the table. Incentive stock options granted by the companies to their employees.
Plus other activities (such as companies using their stocks as currencies to buy out other companies, etc.).
Excerpt from wiki:
In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.
Basically it is saying the pot only came from the chips brought by the players.
For the purpose of the game: you "lose" your money when you exchange your money for stock. Whatever that $x dollar amount it is. The party who sold the stock to you gain that $x amount. Until you liquidate your holding, then you calculate your realized gain (or may be loss) based on your purchase price.
In the case where a stock's price goes up and up and up: it is still a zero sum because the new stock prices are paid by the new players who bring in additional money to the pot. It is still a zero sum game - only that the pot gets bigger over time. Those who gain - their gain money come from the players who come to the game late. That's what it meant by zero sum. The stock price of X may well go to $10000 per share. If sold, the money needs to come from the new players who bring in new money.
(Now how does this universe gets more and more money over time? That's a different question.)
But I said upthread the equity market is not exactly zero sum (just slightly off) because of the reasons stated earlier:
1) Companies paying out dividends. These additional money did not come from new players. They come from the companies' earnings now distributed to the players.
2) The ever-increasing numbers of players who claim some of the pot money but did not bring money to the table. Incentive stock options granted by the companies to their employees.
Plus other activities (such as companies using their stocks as currencies to buy out other companies, etc.).
Scata,
will eb great if you do not edit your posts as it makes my replies look curious and the thread becomes unreadable for others.
Concerning the added lines: Of course there are thousands of bankrupts in history. I did not deny. Never.
Again: Question was whether trading is zero sum or not. And a bankrupt company does not help concerning the answer to this question. Right? Nor does the awareness that businesses fail.
But I have shown that it is pure and simple mechanics of assets and balance sheets that it is not a zero sum.
MK
will eb great if you do not edit your posts as it makes my replies look curious and the thread becomes unreadable for others.
Concerning the added lines: Of course there are thousands of bankrupts in history. I did not deny. Never.
Again: Question was whether trading is zero sum or not. And a bankrupt company does not help concerning the answer to this question. Right? Nor does the awareness that businesses fail.
But I have shown that it is pure and simple mechanics of assets and balance sheets that it is not a zero sum.
MK
OK, now you're getting personal.
Let me put it this way... YOU'RE FULL OF SHIT!
And I sound well educated because I am. I was once a forensic chemist.
You obviously don't bother to "think" at all.... ON IGNORE! (Don't feel too bad, it's a lonnnnnnnnnng list)