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I start a company to make cheap autonomous flying cars. I invest $1,000 of my own money and build a working prototype. It looks promising, so you buy 50% of my
by panarky 12y ago
I start a company to make cheap autonomous flying cars. I invest $1,000 of my own money and build a working prototype. It looks promising, so you buy 50% of my shares for $10,000.
I just made a 20x return on my investment, and you own 50% of a great opportunity. Who's the loser here that makes this a zero-sum market?
Our autonomous flying cars go into production, and now your 50% is worth $100 billion, and you sell your shares to Elon Musk. Where's the zero sum?
- lrm242 12y agoFirst, I never claimed the markets were or were not zero-sum, only that your attempt to explain was wrong as it mixed realized and unrealized profit. Second, zero sum requires a definition of utility for each participant. If those definitions vary (and they almost assuredly do) then a reasonable argument can be made that to define whether the activity is a zero-sum game or not requires a commonality amongst those utilities (dollars, for example). This is often not the case in trading (for example, the farmer hedging his crop with a speculator who seems to profit short term).
- Tloewald 12y agoOnce your company has shares, you made $10,000 for 50% of your stock which you paid $500 for. But the investor merely has your shares. So you are up $9000, whoever got your $1000 is up $1000, and the investor is down $10,000. That adds up to zero. Again, not saying you're wrong, but your example is useless.