4 ms·

It's a zero sum game It most certainly is not. When you buy shares they represent a share in a company. This company may rise in value due to good management,

by sorbits 17y ago

It's a zero sum game It most certainly is not. When you buy shares they represent a share in a company. This company may rise in value due to good management, successful products, expanding into new markets, etc. If you sell your share at a higher price, no-one is going to lose the money you will earn, the company is just worth more than when you bought it. Other securities may make you money in other ways, e.g. if you buy T-bills the FED is paying you interest on the money you effectively loan them.

nearestneighbor 17y ago
Relative to the average market performance , making choices as to what to invest in, seems to be a zero-sum game (by definition, as the net total performance of the investments will be average), but I'm not a finance guru, so feel free to correct me.
- sorbits 17y ago
  What I think you are implying is that if you invest in companies part of some market index¹ and end up above the average performance of this index then someone else, who also invested only in companies in this index, will end up below the average. This however is not zero sum game or has anything to do with markets or investments, it is just how averages work. You could apply the same logic to grades in a school class. ¹ There are lots of market indexes and they only cover a fraction of the investment possibilities and are often trade specific.
  - nearestneighbor 17y ago
    I think what you are saying is that if everyone invested very intelligently, then everyone would be better off, as more money would pour into the more viable ventures (is this what you mean?) I can agree with that, FWIW, but from the short-term algorithmic/high-frequency trader 's perspective (edit), this does not appear relevant (some nth order effect). P.S. Traders often say how their work is useful to everyone, because it makes the markets more efficient. I wonder if it's true. The analogy I'm thinking about is frequent lane swervers on the freeway ("lane arbitrage"). Are they making the freeway more efficient for everyone? I don't think so.
    - sorbits 17y ago
      All I was saying is that it is not a zero sum game. As for invested very intelligently I don’t think you can define that, nor what it means for everyone [to] be better off and more trading of a stock does not mean more money go into the company the stock represent (assuming the stock is not sold directly by the company). This is all very long-winded to get into here, but as a quick example of how this “intelligently” and “better off” is ambiguous I think we would be better off with more alternative energy, so people should invest in that. But a lot of these investments will likely turn out to be non-profitable (even cause a loss) but on the bright side, a lot of R&D in alternative energy will be done, which is good, and those companies with good projects may end out making a difference in the world, etc.
pathik 17y ago
It is a zero sum game. For everyone who gains, there is someone who loses money. The prices aren't going to rise higher and higher forever.
- sorbits 17y ago
  Why aren’t the prices going to rise higher and higher? There is absolutely nothing that says they shouldn’t (or they should for that matter). And how does someone lose money if the prices stagnate? The prices have to actually drop for someone to lose money. Fundamentally this stuff is pretty simple: I have an idea for a business, I need $1,000,000 in startup capital. I sell 1,000 shares costing $1,000 each. After a year my business is profitable and valued at $2,000,000. The stock is now worth $2,000. That means everyone who bought my stock now earned $1,000. Who lost on this? you can say that the consumers who paid my company (to make it worth more) lost, but a) these are not part of the stock market, and b) my product may actually have saved them more than they spent.
  - nearestneighbor 17y ago
    > Who lost on this? Market players who didn't invest in your idea (you could call it "opportunity cost"). If the baseline strategy is "invest randomly", or "invest a little bit in everything", then those who deviated from it by way of not investing in your idea, lost. It only makes sense to evaluate a market player's performance relative to some baseline strategy. I was trying to make this point elsewhere in this thread.
    - sorbits 17y ago
      From http://en.wikipedia.org/wiki/Zero_sum_game http://en.wikipedia.org/wiki/Zero_sum_game 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)
      - nearestneighbor 17y ago
        And how do you define "loss" and "gains" for market players? PS: Your definition appears to be "you lost iff you left with less money than when you came in". OTOH, my definition is "you lost iff you made less money than if you would have if you'd invested it in an index fund".
deleted 17y ago
[deleted]

by sorbits 17y ago

nearestneighbor 17y ago

Relative to the average market performance , making choices as to what to invest in, seems to be a zero-sum game (by definition, as the net total performance of the investments will be average), but I'm not a finance guru, so feel free to correct me.

sorbits 17y ago
What I think you are implying is that if you invest in companies part of some market index¹ and end up above the average performance of this index then someone else, who also invested only in companies in this index, will end up below the average. This however is not zero sum game or has anything to do with markets or investments, it is just how averages work. You could apply the same logic to grades in a school class. ¹ There are lots of market indexes and they only cover a fraction of the investment possibilities and are often trade specific.
- nearestneighbor 17y ago
  I think what you are saying is that if everyone invested very intelligently, then everyone would be better off, as more money would pour into the more viable ventures (is this what you mean?) I can agree with that, FWIW, but from the short-term algorithmic/high-frequency trader 's perspective (edit), this does not appear relevant (some nth order effect). P.S. Traders often say how their work is useful to everyone, because it makes the markets more efficient. I wonder if it's true. The analogy I'm thinking about is frequent lane swervers on the freeway ("lane arbitrage"). Are they making the freeway more efficient for everyone? I don't think so.
  - sorbits 17y ago
    All I was saying is that it is not a zero sum game. As for invested very intelligently I don’t think you can define that, nor what it means for everyone [to] be better off and more trading of a stock does not mean more money go into the company the stock represent (assuming the stock is not sold directly by the company). This is all very long-winded to get into here, but as a quick example of how this “intelligently” and “better off” is ambiguous I think we would be better off with more alternative energy, so people should invest in that. But a lot of these investments will likely turn out to be non-profitable (even cause a loss) but on the bright side, a lot of R&D in alternative energy will be done, which is good, and those companies with good projects may end out making a difference in the world, etc.

pathik 17y ago

It is a zero sum game. For everyone who gains, there is someone who loses money. The prices aren't going to rise higher and higher forever.

sorbits 17y ago
Why aren’t the prices going to rise higher and higher? There is absolutely nothing that says they shouldn’t (or they should for that matter). And how does someone lose money if the prices stagnate? The prices have to actually drop for someone to lose money. Fundamentally this stuff is pretty simple: I have an idea for a business, I need $1,000,000 in startup capital. I sell 1,000 shares costing $1,000 each. After a year my business is profitable and valued at $2,000,000. The stock is now worth $2,000. That means everyone who bought my stock now earned $1,000. Who lost on this? you can say that the consumers who paid my company (to make it worth more) lost, but a) these are not part of the stock market, and b) my product may actually have saved them more than they spent.
- nearestneighbor 17y ago
  > Who lost on this? Market players who didn't invest in your idea (you could call it "opportunity cost"). If the baseline strategy is "invest randomly", or "invest a little bit in everything", then those who deviated from it by way of not investing in your idea, lost. It only makes sense to evaluate a market player's performance relative to some baseline strategy. I was trying to make this point elsewhere in this thread.
  - sorbits 17y ago
    From http://en.wikipedia.org/wiki/Zero_sum_game http://en.wikipedia.org/wiki/Zero_sum_game 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)
    - nearestneighbor 17y ago
      And how do you define "loss" and "gains" for market players? PS: Your definition appears to be "you lost iff you left with less money than when you came in". OTOH, my definition is "you lost iff you made less money than if you would have if you'd invested it in an index fund".

deleted 17y ago

[deleted]