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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 some

by 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".
pathik 17y ago
Well in the long run, it IS a zero sum game. A stock is valued higher only if someone wants your stock. If no one is interested in buying your stock and you try to sell it, its value will be zero. Also, if everyone holding a certain stock starts selling it, in the end the value will drop down back to zero. So everything earned by someone is lost by someone else. The only real earnings which you get by owning the stock is the dividend which the company pays out.
- sorbits 17y ago
  It is true that if no-one wants the stock then the value of it will drop. This however should (under normal circumstances) only happen if the company is not profitable and is in debt (to the point where its physical assets amount to the same or less than its debt). It is not a psychological game, i.e. if someone somehow managed to make the Microsoft stock drop to zero then I would effectively be able to get all of Microsoft for nothing, that’s a pretty sweet deal, and why that stock won’t drop to zero as long as they are profitable. The “psychology” that affects the stock prices are in speculation about the future worth of a company, and that is why you see a disconnect between a company’s net worth and market cap — generally the market cap should be above its net worth, otherwise someone should buy all the shares and liquefy the company :)
pathik 17y ago
If you are talking about the intrinsic value of your company's stock increasing, then it's definitely not a zero sum game. But they do pay out part of their profits (intrinsic value gains) as dividend. If we consider just the stock price fluctuations due to demand/supply (and no changes in the intrinsic value), then it is a zero sum game.

by sorbits 17y ago

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".

pathik 17y ago

Well in the long run, it IS a zero sum game. A stock is valued higher only if someone wants your stock. If no one is interested in buying your stock and you try to sell it, its value will be zero. Also, if everyone holding a certain stock starts selling it, in the end the value will drop down back to zero. So everything earned by someone is lost by someone else. The only real earnings which you get by owning the stock is the dividend which the company pays out.

sorbits 17y ago
It is true that if no-one wants the stock then the value of it will drop. This however should (under normal circumstances) only happen if the company is not profitable and is in debt (to the point where its physical assets amount to the same or less than its debt). It is not a psychological game, i.e. if someone somehow managed to make the Microsoft stock drop to zero then I would effectively be able to get all of Microsoft for nothing, that’s a pretty sweet deal, and why that stock won’t drop to zero as long as they are profitable. The “psychology” that affects the stock prices are in speculation about the future worth of a company, and that is why you see a disconnect between a company’s net worth and market cap — generally the market cap should be above its net worth, otherwise someone should buy all the shares and liquefy the company :)

pathik 17y ago

If you are talking about the intrinsic value of your company's stock increasing, then it's definitely not a zero sum game. But they do pay out part of their profits (intrinsic value gains) as dividend. If we consider just the stock price fluctuations due to demand/supply (and no changes in the intrinsic value), then it is a zero sum game.