Is trading a zero-sum game?

Raving_Cute
Raving_Cute

Is trading a zero-sum game?

I understand it's up to the trader to take a loss and not the game itself, but in no scenario can there be a win/win transaction. So no wealth is created. How is this not zero-sum?

I'm not asking this because I'm salty about it, just curious.

All urls found in this thread:
http://www.oxforddictionaries.com/definition/english/literally
http://www.investopedia.com/terms/z/zero-sumgame.asp
King_Martha
King_Martha

@Raving_Cute
I have $2
you have a sandwich
I would rather eat the sandwich you made than have my $2; so I will be stronger, happier, will be able to work better
You would rather have my $2 than your sandwich; you'll be richer and will have obtained profit, and now you can spend $2 in something else that you want

happy_sad
happy_sad

@King_Martha
A product or service has been exchanged in your example and both parties are better off because of it, win/win.

Not to say there aren't bad deals in the market, sometimes your sandwich taste like shit.

BlogWobbles
BlogWobbles

@Raving_Cute

I don't think you understand the definition of zero sum

LuckyDusty
LuckyDusty

Is trading a zero-sum game?

No.
You buy a share of a company. That company has a breakthrough aids cure and starts racking it in, profiting like crazy. Pays divided in excess of your initial contribution.

You just made a gain and no one lost.

/thread

RumChicken
RumChicken

@LuckyDusty
Nah bro all the poor people lost because now you're going to use your 1%-tier wealth to make sure they can never make $8/hour.

CouchChiller
CouchChiller

@LuckyDusty
What about something like Forex?

@BlogWobbles
You can only be enriched at someone else expense, ie there is only a limited amount of wealth in the pie.

Other things in the market create wealth, open a store, sell some shit, wealth created.

eGremlin
eGremlin

@CouchChiller

You need to delete this thread and spend an hour reading and then try again.

Here's a start

ze·ro-sum
adjective
adjective: zero-sum
(of a game or situation) in which whatever is gained by one side is lost by the other.

FastChef
FastChef

@eGremlin
You literally repackaged my definition faggot.

kys

Supergrass
Supergrass

@RumChicken
kek

King_Martha
King_Martha

@LuckyDusty

You buy a share of a company. That company has a breakthrough aids cure and starts racking it in, profiting like crazy.

The person who sold you the shares lost an equal amount by selling those shares. That makes it zero-sum.

At least in theory it's zero-sum. In practice both of you paid transaction fees to your brokers. That makes it a negative sum game.

So not only does one person have to lose in order for you to win, but you win less due to brokers siphoning out value from the game with each transaction.

askme
askme

@FastChef

Are you pretending to be retarded?

Serious question, because I don't want to insult you if you genuinely are.

kizzmybutt
kizzmybutt

@askme
You can only be enriched at someone else expense
in which whatever is gained by one side is lost by the other

Are you actually retarded?

Serious question, because these two sentences are saying the same thing.

Playboyize
Playboyize

@kizzmybutt

You literally cannot comprehend how what you're saying is different from the definition

What is it like being poor?

Methshot
Methshot

@Playboyize
Nice explanation of your argument, nigger.

It's okay to admit when you're wrong, you know?

PackManBrainlure
PackManBrainlure

@Methshot

You don't even understand basic concepts, so what makes your retarded ass worth explaining anything to?

Here's your (you)

Since you'll probably kys of your bait thread fails

Emberburn
Emberburn

@Raving_Cute
what is inflation
what is capital entering/leaving the stock market and individual stocks
what are dividends
what are buybacks

Evilember
Evilember

@PackManBrainlure
You actually believe a person gaining by someone else losing isn't the same as a person gaining by someone else losing.

How fucking inbred are you?

TalkBomber
TalkBomber

@CouchChiller
even in a "pure trading" scenario, you can create value by providing liquidity, like if someone needs to convert their USD into GBP, then they're willing to pay a fee for that service, so both parties benefit from the trade

TurtleCat
TurtleCat

@TalkBomber
That makes sense.

But what about speculator vs speculator? Someone is closing their trade at a profit and someone else is closing theirs at a loss.

JunkTop
JunkTop

@TurtleCat
say speculator1 buys a stock at $1 in the early days. the company does great and the stock is now worth $10. speculator1 wants to cash out for whatever reason (maybe he thinks the stock is overvalued or he sees larger potential elsewhere), so he sells them to speculator2 at $10. speculator1 made a lot of money but speculator2 didn't lose anything because he can sell his shares at $10 or if the company keeps doing well he could sell them for maybe $20 at some point in the future.

Fuzzy_Logic
Fuzzy_Logic

@Evilember

No one loses in trading

Your future gains or losses are independent of the other person

Supergrass
Supergrass

@JunkTop
Yeah I've heard that before as an argument. It isn't zero sum because selling at a lower price isn't required, thus the greater fool doesn't have to necessarily lose. It just seems more likely than not many people will end up selling at a loss. So maybe it isn't zero sum, but it would seem that a lot of people are winning at other peoples expenses. I by no means am trying to make this sound like "muh evil capitalists".

The company could go bust at which point all investors lose, but obviously that wouldn't zero sum either.

Sir_Gallonhead
Sir_Gallonhead

@Supergrass
people can sell at a loss, but all in all, you're likely to come out as more or less of a winner as long as you don't act too stupid. you could buy and hold randomly picked stocks or invest in an index fund and have a really high probability of profiting in the long run. money is created out of thin air and finds its way into the stock market and into the pockets of the average shareholder, and the companies listed on the stock exchange genuinely create value which is to be reflected in their share price (since each share represents ownership of a part of the company).

Evilember
Evilember

ITT: Underaged kids who think a stock's value comes from the "stock price," when it actually come from their real profits and dividends.

It's like buying a car for $500. Is the car's value $500 because I or someone paid $500 for it? No, it's worth the value I can get out of it, the price in itself is zero-sum if there's no intrinsic worth of the car to me. The same goes for stock.

Trading is a zero-sum game for meme and ponzi scheme stocks that don't pay dividends, but most certainly not for companies that make real world profits and distribute those real world profits as dividends.

Flameblow
Flameblow

@King_Martha
IPO, investor A buys 1 stock at $100
Investor B buys Investor A's stock for $200, due to the promise the drug is showing.
That company has a breakthrough aids cure and starts racking it in, profiting like crazy. Pays divided in excess of $200 stock price. Stock price also goes up.

Both investors made a gain in excess of brokerage fees. No one lost.

StrangeWizard
StrangeWizard

Daytrading is as close to a zero sum game as you can get. Holding long term makes it much less of a zero sum game, as stocks can appreciate in value relative to inflation if their company grows.

Stupidasole
Stupidasole

@Flameblow
I was going to go with "A rides from $50 to $100 long, while B rides from $150 to $100 short", but congratulations.

MPmaster
MPmaster

I've spent a lot of time thinking and researching this question, so I am qualified to call you guys retards.

If the company does not pay a dividend, then the stock is a zero sum game. All money that goes in or out of the system is a trader's money. Forex is a zero sum game. Derivatives are a zero sum game. Insurance is a negative sum game. Zero sum games aren't inherently evil, so calm your tits.

@Evilember
Correct, the only real reason the stock market exists is for dividends. The only cash value that a stock has is the dividend payout. Otherwise the stock is technically worthless. Buying a non-dividend stock is like buying a pokemon card, it just sits there and does nothing while you hope it goes up in value. Buying a dividend stock is like buying a solar panel, it takes the power coming from the sun and spits out cash. Every company on the earth takes power from the sun and spits out cash. That is where the positive sum comes from, the sun.

@King_Martha
Retard no. In that situation, the person buying the sandwich values it at $3. The seller values the sandwich at $1. Everyone profits $1. But in the case of stocks, when the buyer turns around and fails to sell the stock for $3, he doesn't profit, he loses.
@King_Martha
The person who sold you the shares lost an equal amount by selling those shares. That makes it zero-sum.
What? No? Dividend stocks are a positive sum game. Traders do not have to pay other traders dividends, those come from the company. So it is inaccurate to say that the person who sold you the share is losing as money because you are being paid a dividend.

Evil_kitten
Evil_kitten

@Evilember
@MPmaster
You guys are almost dumber than the people you're criticizing. Plenty of stocks yield great returns and pay zero dividends. There's at least 80 stocks in the S&P 500 that pay no dividends.

viagrandad
viagrandad

@MPmaster
I am qualified to call you guys retards
No, not really

the only real reason the stock market exists is for dividends
put down the crack pipe

Traders do not have to pay other traders dividends
I have to do it every time I hold a dividend paying stock short

Please stop acting like the teacher here.

CodeBuns
CodeBuns

@Evil_kitten
I don't know what a zero sum game is
I'm not saying you can't still make money with the stock. As long as more people are buying every year than selling. But it is a zero sum game in the end, what do you think happens if the company goes bust? Your shares become worthless and you lose all your money. Let's say a non-dividend stock goes bankrupt: If you take EVERY single person that ever invested in that stock, calculate all the money that they all had before and all the money that they all had after, those numbers would be the same. No new wealth is created with 0-dividend stocks, and no company exists for an infinite amount of time.

@viagrandad
I have to do it every time I hold a dividend paying stock short
Yeah, and guess where that money goes? Not to the person owning the stock, you silly, it goes to your broker! The person holding the stock still gets their dividend from the original company.

Listen, I'm not trying to say that non-dividend stocks are a ponzi scheme, just that you should be aware of the risks and rewards. You don't really own the company, because the definition of ownership of a company is that you have a share of the company's future profits. When you buy a company, you are really buying all the money that the company will make in it's lifetime.

Nude_Bikergirl
Nude_Bikergirl

@CodeBuns
I don't know what a zero sum game is
I understand that you don't know what a zero sum game is. That's why I'm trying to teach you.

Dividends have NOTHING to do with it. Dividends are always priced into the stock's price. Stocks fall by the amount of their dividend payment. Go check stock prices before and after the ex dividend date and run the numbers. Price is price, ans has nothing to do with the answer here.

The answer, of course, is a complex combination of nationalistic factors, such a GDP growth and population growth. Certain cultural changes can also positively influence markets, trends towards longer working hours, and less vacations. Developments in legal and regulatory structures eliminate market inefficiencies, such as corruption, price manipulation, and insider trading. And lastly, and most importantly, technological advancement generally contributes to both demand and efficiency gains, providing a strong positive bias in affected markets.

tl;dr Markets aren't a zero-sum game because the market itself is growing. In healthy nations, the pie literally gets bigger over time.

haveahappyday
haveahappyday

@Nude_Bikergirl
In game theory and economic theory, a zero-sum game is a situation in which each participant's gain of utility is exactly balanced by the losses of the utility 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.

Well you make an interesting point. I think what you are saying is that since the population will always increase, there will always be more investors to put more and more money into the system. In that way it is not a zero sum game. But I'm trying to understand it on a more fundamental level. After the heat death of the universe and every living thing is dead and every company is bankrupt, even index funds will be worthless. And at that point if you count the sum of all money people that put into non-dividend stocks and the sum that all people got out, they would be equal. The total profits minus the total losses will equal zero. That is the definition of a zero sum game. There is no other possible way around it. Where would the extra money come from?

StonedTime
StonedTime

@haveahappyday
I think what you are saying is that since the population will always increase, there will always be more investors to put more and more money into the system.
That's one factor, certain. More people = more demand. We do see that countries with growing populations tend to have growing markets, while declining countries often show systemic market weakness (Japan).

After the heat death of the universe
In your hypothetical, the holder of the non-dividend stock never gets to sell, so he never experiences his gains. You've literally assumed away the mechanism by which most people realize value from their investments: selling them for more than they paid for them.

Fortunately, in the real world, we can realize our price appreciation gains whenever and however we want -- thanks to the liquid, efficient, and (mostly) honest markets that match willing sellers with willing buyers.

But if you really want to get your arms around the question, start with technology. A new invention, process, technique, or program can literally create value where none existed before. That alone disproves the zero-game argument.

CouchChiller
CouchChiller

@MPmaster
Forex is a zero sum game.

you're forgetting interest... if you're going to argue that dividends make stock trading non-zero sum then neglecting the role of interest rates in FX (whereby an FX deal is essentially broke down into a loan and deposit) is naive ergo this comment:

so I am qualified to call you guys retards.

is ironic. I'm assuming your only experience of FX is via a bucketshop

DeathDog
DeathDog

@Nude_Bikergirl
Dividends have NOTHING to do with it. Dividends are always priced into the stock's price.

short term you're not going to get a free lunch re: ex dividend dates etc.. and stock prices will move to prevent the obvious arbitrage oppertunity that would otherwise exist

however dividends do mean additional money flowing into the system which can stop stock trading from becoming zero sum

futures trading, viewed in isolation, and ignoring transaction costs can be viewed as zero sum

trading in equities though doesn't have to be zero sum simply because dividends exist

your argument that more money is added to the market isn't a reason for it to not be zero sum... for example if you increase the volume in futures contracts traded the game is still zero sum when viewed in isolation. It is the additional funds added to the game such as dividends (generated by profits earned by the underlying asset rather than from transactions between market participants) that make it non-zero sum

Supergrass
Supergrass

@haveahappyday
the sum still wouldn't be zero from the investors/speculators point of view, because of dividends and share issues and buybacks. the money comes from the company.

Booteefool
Booteefool

@Raving_Cute
Derivatives are zero sum by definition. There is a winner and a loser.

Stocks are not zero sum as they represent generated wealth. A winner in an economy does not mean there is a loser. Wealth is generated by individuals working.

Even in derivatives though, there will be parties who are more often winners and there will be parties that are more often losers. An investor can make consistent returns trading derivatives even though they are zero sum by nature.

5mileys
5mileys

@Evilember
ok benjamin graham

Emberburn
Emberburn

@Raving_Cute
How is this not zero-sum?

The whole business of speculating provides a service to the real economy by distributing and minimizing risks. A trader makes money because he is willing to provide hedging to a counterparty.

Example: cattle rancher subscribes a contract for the delivery of a certain amount of cattle to a certain date at a certain price. Wheter cattle prices will rise or fall at the expiration date, he doesn't give a shit. He doesn't want to speculate (aka taking risk), he just wants to sell cattle. The contract provides him a way to reduce the intrinsic risk of cattle selling

A trader buys the contract because he believes cattle might be selling at a higher price at the expiration date. He is taking risk. If he is right, he will have a certain amount of cattle at a very good price. If he is wrong, it's his loss.
Or he can fragment the contract and resell it before expiration date.
There is something intrinsically valuable in removing risk from a certain asset. While globally the whole thing appears indeed as "zero sum", the "negative sum" paid by the "loser" is just a compensation for the risk taken by the speculator "positive sum".
Risk has its own value. You can apply the same reasoning in stocks as well.

Note how nobody in this thread gave the correct answer. Note how many kids just copypasted big words from Investopedia to appear like "le master trader XD". Then ponder why this board's quality is so low.
Not complaining anyway, this level of ignorance is common amongst retail traders. More liquidity for me i guess
t. prop trader with an engineering degree, too busy making money and laughing at econoplebs and kids on the internet

ZeroReborn
ZeroReborn

@Emberburn
that's just one aspect of it, and you're still implying that it's zero-sum, just that the negative sum is a price people are willing to pay, you're not really explaining why it's not a zero-sum game.

Lunatick
Lunatick

@Raving_Cute
Trading is actually a negative sum game. But its not comepletely gambling so your skill factors in to your success or failure. On average it takes a trader 8 years to become profitable. It took me only 3.

DeathDog
DeathDog

@DeathDog
however dividends do mean additional money flowing into the system
Nope. Dividends come from a company's free cash flow. Paying it out reduces the company's retained equity, lowering its value. That's why the stock price falls: paying a dividend makes the company worth less. There's no gain since the dividend is offset by the change in price.

Of course, that company's stock price can go up (or down) for other reasons UNRELATED to the payment of the dividend, such as increased sales, lowered costs, improved efficiencies, etc. This definitely creates value where none existed previously. All as I previously explained above.

GoogleCat
GoogleCat

@DeathDog
do you even know what a zero-sum game is? investors pay a "sum" of money for the shares. when the company increases in value, the "sum" can increase from new capital coming in and buying shares off the original investors, and the "sum" can also increase from dividends. so the amount of money that investors put in is not equal to the amount that investors get out of it, so it's not a zero-sum game from their perspective, since all investors can come out as winners.

Deadlyinx
Deadlyinx

@LuckyDusty
Dont call /thread on yourself. It is a compliment you give to somebody elses post. People who compliment themselves are narcisistic assholes.

Burnblaze
Burnblaze

@GoogleCat
investors pay a "sum" of money for the shares
Ok, so investor pay $X for shares...
when the company increases in value, the "sum" can increase
Nope. The investors still paid $X.. The "sum" didn't change and never will. The value of the shares may change, but never the purchase price.
the "sum" can also increase from dividends
Again, wrong. The "sum" will never change. Dividends will lower the share price, and result in cash in the investors pocket. The gain and loss will be the same, by the way.
so the amount of money that investors put in is not equal to the amount that investors get out of it
Yes it is, UNLESS the share price rises and the investors sell at the higher share price.

I'll give you a 3/10 for bad posts. Your conclusion is correct (not a zero-sum game) but you have no fucking clue how the markets actually work.

CouchChiller
CouchChiller

@DeathDog
You are ignoring the fact that if the stock price goes down, sure one trader loses but another trader gains. So it evens out. The sum of losses and gains is zero. If you add dividends to the mix, then it becomes a positive sum.

It doesn't matter if the price goes down. Take this example:

A company IPOs at $15.00 a share. Investor A buys the share for $15 and sells at a loss to Investor B for $10. Investor B sells to investor C for $5. At this point the company goes bankrupt and investor C is unable to liquidate his share. Now let's run the math: The company makes a $15 dollar profit, investor A lost $5, investor B lost $5, investor C lost $5. Now we sum up everyone's profit and losses:

15 - 5 - 5 - 5 = 0

Exactly zero, because it is a zero sum. Doesn't matter if the price increases either: A company IPOs at $15.00 a share. Investor A buys the share for $15 and sells for profit to Investor B for $20. Investor B sells to investor C for $25. At this point the company goes bankrupt and investor C is unable to liquidate his share. Now let's run the math: The company makes a $15 dollar profit, investor A makes a $5 profit, investor B makes a $5 profit, and investor C lost $25. Now we sum up everyone's profit and losses:

15 + 5 + 5 - 25 = 0

Exactly zero again. Note that even if one investor got a dividend of $0.01 this would be a positive sum game.

I'm not saying zero-sum is automatically a bad investment. I'm just trying to get the mathematical facts straight.

VisualMaster
VisualMaster

@ZeroReborn
you're not really explaining why it's not a zero-sum game

Read more carefully, my unintelligent friend. If we eliminate attrition costs (spreads, commissions, slippages) trading is entirely a zero sum game.
One partecipant's loss is simply a fee paid to another partecipant to get rid of some risk.

FastChef
FastChef

@Burnblaze
@VisualMaster
fuck off

BunnyJinx
BunnyJinx

@FastChef
Be a mongoloid elsewhere then

GoogleCat
GoogleCat

@BunnyJinx
stay delusional

New_Cliche
New_Cliche

@CouchChiller
You are ignoring the fact that if the stock price goes down, sure one trader loses but another trader gains. So it evens out.
What? If every initial IPO investor bought at $X (your example) and then every one of them sold at $X+50% when the price went up, who lost money?

pro-tip: no one ... that's why it's not zero-sum.

pro-tip: notice how I didn't mention dividends even once

The company makes a $15 dollar profi
Wrong. Selling shares in an IPO isn't profit to the company. The company doesn't own the shares in an IPO; the founders do.

You're correct that in an example of a failing company that goes bankrupt and dissolves, there is no value created. Duh. Fucking duh.

Now run an example of a company that IPOs at $15 (profit to the founders) and always rises steadily over time WITHOUT PAYING A DIVIDEND. No losers. Anyone who sells, at any time, makes a profit. Not zero-sum.

Are you getting this yet? Because I'm not wasting any more time on you. Either I'm being trolled or you're a lost cause.

Garbage Can Lid
Garbage Can Lid

@Raving_Cute

with QE you cannot call it zero sum

Spamalot
Spamalot

@Garbage Can Lid
this

Evil_kitten
Evil_kitten

literally control f the thread for literally.
it literally comes up 5 times
it literally comes up 5 times
literally wonder if people realize that literally is the opposite of figuratively
literally considering blowing my brains off so i dont have to hear that word one more literal time.

askme
askme

@Evil_kitten
http://www.oxforddictionaries.com/definition/english/literally
Used for emphasis while not being literally true:
I have received literally thousands of letters

Methnerd
Methnerd

@Garbage Can Lid
with QE you cannot call it zero sum
*sigh*

QE has been used by the Fed ONCE, from 2008-2014. Arguably they did something similar once before, during the great depression. The market has been non zero-sum since forever.

Does QE have a tendency to drive up asset prices, such as stocks? Yes. Is that why the stock market is not a zero-sum game? No.

Protip: a growing economy, such as that found in most civilized nations, doesn't need artificial demand to create business value.

eGremlin
eGremlin

@Methnerd

once
6 fucking years
TRILLIONS of dollars
EU bank does the same
Bank of Japan does the same
China does the same

The markets are global my friend, stocks have been wildly manipulated by QE and still are

Supergrass
Supergrass

@eGremlin
You seem to be confused, user. No one's disputing the effect of QE, just your specious and erroneous claim that its the reason why markets are non-zero-sum.

Also, while it's true that Fed bought some $3.5 trillion in assets, it's hyperbole to overstate the magnitude when the capitalization of the world debt and equity markets exceeds $294 trillion. QE purchases were notable, but hardly worth ALL CAPS.

P.S. EU QE has been even shorter and smaller, and Japan's never worked.

stocks have been wildly manipulated
/x/ is over there, kid. We're trying to have an adult discussion here.

Garbage Can Lid
Garbage Can Lid

@eGremlin
I'm curious how you'll answer this:

Since QE stopped in the U.S. in 2014, ending all that artificial demand and "manipulation" of the markets (by jews, I'm sure you'll claim), then why didn't the markets crash when QE was terminated?

girlDog
girlDog

@Raving_Cute
Trading in itself in the long run is and must be a zero sum game (inb4 muh eternal growth & le ebin asset price inflation. Both are temporary and will NOT persist in the long run.)

However, it creates positive externalities for society in form of more efficient resource allocation.

SniperGod
SniperGod

@New_Cliche
who lost money?
The person left holding the worthless stock when the company goes bust. The more the price increases the more magnified the losses when the company fails.
"investor C lost $25"

Wrong. Selling shares in an IPO isn't profit to the company. The company doesn't own the shares in an IPO; the founders do.
Not sure what you're saying here. The founders do not own shares in an IPO, the founders SELL shares to the public and receive money for those shares. If the company IPO's at $15 a share they get $15 for every share that gets put on the market.

Now run an example of a company that IPOs at $15 (profit to the founders) and always rises steadily over time WITHOUT PAYING A DIVIDEND. No losers.
Absolutely, 100%, undoubtedly correct. Congrats, you're getting it. Just one small problem:

Now run an example of a company that ... always rises
Sure. Give me a company that will always profit for infinity until the end of time. Just because a company goes bankrupt doesn't mean the company was a failure. Apple, google, amazon, the US government, they will all go bankrupt eventually. Unless you want to argue against the second law of thermodynamics and say that Apple is a perpetual motion machine. But if you live in reality you know it can't last forever. It is a zero sum game unless the investor left holding the last shares are able to get any money from the liquidation of the company.

Sure, nobody loses money in a ponzi scheme that lasts an infinite amount of time. No doubt about that, but it's just a fact of life every company that provides or not will go bankrupt on day. If you know of a company that will never go bankrupt PLEASE tell me about it, because that company would be worth an infinite amount of money. If we are talking about the fundamental mechanics of a non-dividend stock, it is a zero sum game. Don't even take my world for it, ask an expert yourself and he will tell you the same thing.

AwesomeTucker
AwesomeTucker

@SniperGod
a company could stay in business for a long, long time and it could get bought up by a different company, so that no investor loses money

Illusionz
Illusionz

@SniperGod
Basically your argument is that the universe is a zero-sum game because everything will eventually die. Therefore the markets, which are part of the universe, must also be zero-sum game.

Guess what: you're right.

Guess what else: you're a massive faggot for trying to change the definitions and context of the discussion. Now that you understand you're wrong about dividends, you're just trolling the thread with metaphysical bullshit. No one cares that in a billion years every thing we know will burn up in the sun. No one makes a financial plan for the next billion years. Stop being a douchbagh.

TechHater
TechHater

@Illusionz
We seem to have a simple misunderstanding and I want to correct it. I am just following the logic of how the markets function.

you're just trolling the thread with metaphysical bullshit
I was just proving companies don't last forever. You have yet to provide me an example of a company that would last forever.

It doesn't take a genius to understand it. When you buy and sell non-dividends stocks, everyone can see that it is just a bunch of traders trading money back and forth amongst themselves. No money from the selling of goods or the delivering of value is ever given to a trader, the only money you get as a non-dividend trader is from someone else's bank account, never the company. Similar to a derivative contract. The money you win isn't from providing value, it's directly from someone else.

but if the stock price goes up infinity forever then everyone profits!!!! Not Zero Sum!
Yes, if it goes up forever it is positive sum.

Nude_Bikergirl
Nude_Bikergirl

@TechHater
see @Emberburn
also mergers and acquisitions

Gigastrength
Gigastrength

@TechHater
You have yet to provide me an example of a company that would last foreve
And irrelevant and pointless inquiry. No one has an infinite investing horizon. People invest for 5, 10, 20 years. Plenty of companies last that long. And the one's that don't are bought or replaced by others. And new one's are created too. Stop asking me to engage in the same mental gymnastics that is leading down the wrong logic path.

the only money you get as a non-dividend trader is from someone else's bank account
If I buy a stock for $5 and it increases to $15 and I sell it, I have $10 profit. Who's pocket are you claiming that money came out of? The seller? Wrong. He used the $5 I paid him and bought other stocks that also went up in price. He wins, I win.

I can't explain this any more simply, and I won't repeat myself again. Either you get it, or you don't.

Flameblow
Flameblow

@LuckyDusty
You're retarded. All shares start at 0 value and end at 0 value.

whereismyname
whereismyname

@Raving_Cute
The national debt is $20T, it might be zero-sum for you suckers but certainly there are gains without losses made around the stock market.

Nude_Bikergirl
Nude_Bikergirl

@MPmaster
It's important that the company can retain earnings. It doesn't matter whether you "win" by getting paid in dividends or the stock going up and you can sell it at a higher price.

But that's not why the stock market exists. The stock market exists for entrepreneurs with business ideas and expertise to meet with investors and receive their surplus money they don't know where to put. If the whole things works out both parties win.

King_Martha
King_Martha

@GoogleCat
yes I do and you're really off the mark if you think that simply having more players or greater volume of transactions or cash in the game makes it zero sum... it doesn't

You can work it out for yourself in closed form with say futures trades... say a handful of contracts traded... or double that number or more still - increasing the amount of capital at play doesn't change the fact it is zero sum (ignoring transaction costs) as the money won comes from the money lost. Doesn't matter what the underlying asset it - whether it is gold increasing in value or a company.

It is the dividends, the additional flow of money that hasn't come from participants trading with each other but has come into the game externally from the underlying asset that can make equities trading non-zero sum. It is a simple point but if you're talking about investors and companies increasing in value as reasons for a game to not be zero sum then you don't really understand it yourself.

girlDog
girlDog

@King_Martha
@GoogleCat

sorry, got in a muddle and quoted the wrong poster here...

should have been criticising this guy's post:
@DeathDog

Evil_kitten
Evil_kitten

@DeathDog
if you can't understand that dividends represent additional funds flowing into the system then there isn't much hope.... you're fixated on the change in equity prices to remove the arbitrage opportunity around dividend payments, that doesn't remove the fact that more cash is flowing into the system still

w8t4u
w8t4u

@Evil_kitten
You don't understand. The dividend is simply a bookkeeping entry from the company's point of view. It's already in the company or in the system.

Burnblaze
Burnblaze

@w8t4u
example: investors put in $1 million. company ends up making a lot of money and pays out $10 million in dividends to the investors. how is this is a zero-sum game from the investors' point of view? surely, all investors in the example have come out as winners, at no one's expense.

Evilember
Evilember

@Burnblaze
at no one's expense
except for the company, i mean from the investors' point of view, but the company was still benefiting from the funding.

Illusionz
Illusionz

@Burnblaze
I'm not arguing it's zero-sum. Just saying that for the stock owner it technically doesn't make a difference whether he receives a dividend or not ceteris paribus. The dividend is his money whether it's invested in the company or paid out to him.

WebTool
WebTool

@w8t4u
but we're not looking at the company's point of view.... you're kind of missing the point there - we're looking at the market participant's point of view

@Illusionz
I'm not arguing it's zero-sum.

What do you think is being discussed exactly? The thread is about whether trading is zero sum or not...

hairygrape
hairygrape

It is the dividends, the additional flow of money that hasn't come from participants trading with each other but has come into the game externally from the underlying asset that can make equities trading non-zero sum.
Don't try to extend the simple model with external factors or special perspectives/cases.
External flow-in of dividend money is unstable in the long run because at some point these sources run out of money unless they and the recipients of dividends represent a identity making it zero sum again.

Bottom line:
GLOBALLY it's a zero sum game.
LOCALLY there can be cases where all investors in a company end up winners/losers.
TEMPORARILY the system can be skewed and messed it in a way to make lots of people appear winners. (Increasing money supply, massive amount of debt on government and central bank books, creating incentives to put money in the market)

As I mentioned before there are also positive externalities created by this for society due to more efficient resource allocation, leading to more technological advances and better satisfaction of people's needs.

Sharpcharm
Sharpcharm

@hairygrape
at some point these sources run out of money
GLOBALLY it's a zero sum game.
money is literally being created out of thin air.

eGremlin
eGremlin

@hairygrape
dividends are a 'special case'?... erm nope... they're fairly standard for stocks...

if the company is viable and producing something of value then they'll often carry on paying dividends

Spamalot
Spamalot

@Nude_Bikergirl
Stocks fall by the amount of their dividend payment
in a perfect free market, not with government interference in the financial sector

LuckyDusty
LuckyDusty

@Spamalot
it doesn't matter anyway... the trading activity by which stocks rise and fall is zero sum... the dividend income still represents additional money flowing into the game...

Fried_Sushi
Fried_Sushi

@WebTool
But it is you who is missing the point. The dividend was already part of the system. It was equity in the company therefore increasing the stock price.

The trader is not an employee of the company who gets a dividend as a bonus or reward. He is the owner of the company.

takes2long
takes2long

@Fried_Sushi
no it wasn't...

you're talking about trading, what is in the company or the intrinsic value of the underlying commodity or whatever is being traded is utterly irrelevant as far as whether trading is a zero sum game or not

with nothing added to the game and with no transaction costs it is zero sum - the money won by the net winners comes from the money lost by the net losers

if you add in dividends then you're putting additional money into the game which can make it more than zero sum... adding in transaction costs can make it less than zero sum

it really is a simple concept

The trader is not an employee of the company who gets a dividend as a bonus or reward. He is the owner of the company.

I'm not sure what point you're trying to make there but the owners of the shares in the company are the people recieveing dividends... employees are irrelevant as far as this topic is concerned

Soft_member
Soft_member

@Fried_Sushi
Don't bother. It's one guy who doesn't get it, and he's either trolling Veeky Forums or borderline aspergers. He thinks dividends are magic, and no amount of explanation is going to help.

viagrandad
viagrandad

@Soft_member
no I think you just don't understand what a zero sum game is... nothing you've presented so far changes what I've argued

Poker_Star
Poker_Star

@Raving_Cute
you invest $5 in company x
company x gains exactly $5 worth of utility

No, it is not a zero sum game. How often do you think the above happens? There are thousands of variables involved that mean that it is never zero sum.

RumChicken
RumChicken

It is important to note that the stock market overall is often considered a zero-sum game, which is a misconception, along with other popular misunderstandings. Historically and in contemporary culture the stock market is often equated with gambling, which is definitely a zero-sum game. When an investor buys a stock, it is a share of ownership of a company that entitles that investor to a fraction of the company’s profits. The value of a stock can go up or down depending on the economy and a host of other factors, but ultimately, ownership of that stock will eventually result in a profit or a loss that is not based on chance or the guarantee of someone else’s loss. In contrast, gambling means that somebody wins the money of another who loses it.
http://www.investopedia.com/terms/z/zero-sumgame.asp

Stupidasole
Stupidasole

@RumChicken
When an investor buys a stock, it is a share of ownership of a company that entitles that investor to a fraction of the company’s profits. The value of a stock can go up or down depending on the economy and a host of other factors, but ultimately, ownership of that stock will eventually result in a profit or a loss that is not based on chance or the guarantee of someone else’s loss.

key part of this... dividends! The actual trading activity, day to day buying and selling shares similarities with gambling or futures trading (which is zero sum)

it is, as per your post, the fact that you own a share of a company which in turn makes profits and passed this profit onto you that makes it not zero sum... the money you 'win' doesn't just have to come from other market participants but there is additional flow of money into the game in the form of dividends

Dreamworx
Dreamworx

@Stupidasole
The tragic irony of all this shitposting just occurred to me. This idiot denies all the actual reasons why markets are not zero-sum, and claims that dividends are the only reason.

And yet, in fact, dividends are one of the only zero-sum mechanisms in the markets.

cum2soon
cum2soon

@Raving_Cute
Like poker, the positive sum is in the fresh inflow of money, or fish (read: new investor).

You buy share from someone. Share goes up, you win, someone lose.

You buy share from a company. Share goes up, you win, the sucker who now have to buy at a higher price lose.

massdebater
massdebater

@Poker_Star
Imply the only part of the transaction is when you enter.

When you exit, some sucker will need to fork out more money for value created by the company but already captured by you. Zero utility whatsoever.

Flameblow
Flameblow

@massdebater
the company could get bought up by another company, and then from the investors' point of view they're all winners even after heat death of the universe

BinaryMan
BinaryMan

Yes. Except people who don't trade with free money, aka debt at 0% interest rate, will always win.

Evil_kitten
Evil_kitten

Trading exists purely because of the assumption that wealth will be created with time. 1 share of a company is expected to gain worth as time goes on.

When someone sells a share that later gains value, they didn't lose their original profit. There was an opportunity cost, but opportunity costs are only used to effect future decisions, not change results in hindsight.

Trading in itself cannot be zero sum by definition. You're merely exchanging products of worth based on subjective value.

PurpleCharger
PurpleCharger

@Dreamworx

putting aside the fact you don't seem to understand what a zero sum game is it seem that reading comprehension isn't a strong point for you either

GoogleCat
GoogleCat

@cum2soon
that is a flawed argument - poker (ignoring the rake) is an example of a zero sum game

I think part of the problem in this thread is people don't even understand what a zero sum game is to begin with... increasing the 'flow of money' into a poker economy doesn't change the fact it is a zero sum game, likewise increasing the volume of futures contracts traded doesn't change futures trading which is inherently zero sum (again if we ignore transaction costs)

Illusionz
Illusionz

@massdebater
Zero utility whatsoever
Not if they're covering their short at a profit.

Stark_Naked
Stark_Naked

@GoogleCat
people don't even understand what a zero sum game is to begin with
I agree. You totally don't know what a zero-sum game is. That's why you keep claiming that dividends add value to the "system" (wtf does that mean?) when in fact dividends are zero-sum.

Idiot. (I'm referring to myself here, because I know you're too stupid to get this, but I keep trying anyway.)

Need_TLC
Need_TLC

@GoogleCat
Trading dividend stocks isn't zero sum though. The lowest that a stock can go to is zero but a sustainable dividend will continue to rake in profit.

likme
likme

@Stark_Naked
fucking retard i'm so sick of this shit.

we're not talking about a game on a global economy level, and even if we were, the constant influx of more money that is literally being created out of thin air makes it not a zero-sum game. we're talking about from the investors' point of view. the investors are the players of the game, not the company. the company adds money (which in itself wasn't necessarily made off of someone else's loss) to the game through dividends, so it's not zero-sum.

Firespawn
Firespawn

example:

company buys $1M worth of raw materials
produces $10M worth of finished goods and sells it
no one lost any money because the seller of the raw materials got $1M and the buyer of the finished goods got $10M worth of goods
company gives $5M in dividends to its shareholders
everyone wins, no one lost anything

Fried_Sushi
Fried_Sushi

@Need_TLC
The lowest that a stock can go to is zero but a sustainable dividend will continue to rake in profit.

He thinks a stock that goes to zero will still pay dividend.

That's cute. I wonder if dividends are somehow tied to a company's profitability, and I wonder if the stock price is also tied to company's profitability?

@likme
the investors are the players of the game, not the company
That's cute too. He thinks the success or failure of investing in companies has nothing to do with the companies themselves.

@Firespawn
company buys $1M worth of raw materials
produces $10M worth of finished goods and sells it
no one lost any money because the seller of the raw materials got $1M and the buyer of the finished goods got $10M worth of goods
company retains all profits to reinvest in its business operation
NO DIVIDEND PAID
stock price rises in an amount equal to the retained dividends
everyone wins, no one lost anything

Rather than bash my head open in frustration at the retardation on this board, I've decided to smile every time a moron posts something stupid. Thanks for the grins fellows.

whereismyname
whereismyname

@Fried_Sushi
kill yourself and stay delusional stupid sperg

MPmaster
MPmaster

@Stark_Naked
You totally don't know what a zero-sum game is. That's why you keep claiming that dividends add value to the "system" (wtf does that mean?) when in fact dividends are zero-sum.

You don't seem to understand what a zero sum game even is if you're making that claim

you don't seem to understand that the money transferred to and from market participants through the activity of buying and selling some asset is. like gambling, zero sum... but that when you add in additional income to the system (such as from dividends) it no longer is.

It is really basic but because you can't seem to grasp the basics you're getting yourself confused and frustrated when people correct you

Soft_member
Soft_member

@Need_TLC
Trading dividend stocks isn't zero sum though

That is the point being made

5mileys
5mileys

@Fried_Sushi
you provided an example at the end there of the company seemingly becoming more valuable... that is utterly irrelevant and doesn't change whether the game is zero sum any more than say trading in gold futures is somehow not zero sum if the price of gold rises

this again is a fundamental misunderstanding on your part - a game is zero sum when the money won comes from the money lost by participants... which is the case in trading (whatever is happening in the underlying assets themselves is utterly irrelevant) - the fact that additional money, from dividends, flows into the game... i.e. money that hasn't come from trading among the participants, makes it not zero sum

TalkBomber
TalkBomber

@MPmaster
@Soft_member
@5mileys

I've decided to smile every time a moron posts something stupid

CodeBuns
CodeBuns

@TalkBomber
standard behavior from retards... don't understand something... just smile :)

viagrandad
viagrandad

@CodeBuns
also standard behavior for retards.

Do you stop and explain complex things? no, you smile softly and wish them well, while silently lamenting their simple life -- eat shit and be merry -- such little worthy suffering they have -- barely able to string together a complete synthesized thought -- parroting away echoes while being a slave to impulse and spastic sensation.

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