Is the stock market really +e.v.

[va_chier]

if someone pick stocks at random and sold them at random would they show a profit over 50 years? Does someone have to lose for you to show a profit?

[Ray Zee]

yes they would show a profit. so it would be plus ev. but thing is whether it would show a greater profit than say bonds or gold or real estate. in the past it did mostly beat the competition. but not likely over the next 50 years.imo.

no, someone doesnt have to lose for you to win. if a stock goes up everyone that currently holds it wins. although people can have positions that also lose.

[va_chier]

so if 99% of the people in the market used the buy and hold method those 99% would still show a profit long term? Isnt the market a zero sum game?

[crazy canuck]

Isnt the market a zero sum game

To quote poster one word answer:

[ QUOTE ]
NO

[/ QUOTE ]

[lehighguy]

Stocks go up in value because thier underlying assets (companies) go up in value. This is because of the expansion of the economy over time. Let us say for arguement sake that stocks have a long run return of 11% (i'm making this up). This 11% is based on the increase in the value of the underlying companies.

So if everyone buys and holds they will return 11% over the long run. This is the part of the game that is NOT ZERO SUM.

However, if you try to beat the market (return greater the 11%) by purchasing the better stocks at the right time then you must get your profits from somwhere. That somewhere being the poor sap on the other end of that trade. There is a long debate over wether anyone can beat the market over the long run but you can find that in other threads.

Here's a comparable. Imagine a poker game where the house put and extra $3 into the pot at the end of every hand rather then taking it away as part of the rake. As such, new money would be flowing into the table constantly (the 11%). However, the better players will still do much better then the fish since they will not only benefit from the extra money but also their own play.

[va_chier]

nt

[AdamL]

They'll pay $11 but in real dollars. If everyone buys and holds and the economy grows at $11, the shares sell one year down the road for $11 still, but that $11 buys a bigger basket of goods.

[OrangeCat]

The Wall Street journal has the famous “dart board” contest where the dart board usually shows more of a profit in the short term than the picks by the highly paid analysts. However, WSJ didn't talk about when to sell these picks.

I have a hard time believing that random entries and exits could possibly show a profit. An axiom I’ve heard from many traders is “it’s not the entries that matter, it’s the exits.”

[adios]

[ QUOTE ]
but thing is whether it would show a greater profit than say bonds or gold or real estate. in the past it did mostly beat the competition. but not likely over the next 50 years.imo.

[/ QUOTE ]

I'm surprised nobody asked you about this comment. And why might that be?

[felson]

I don't see any reason that random sells should be any worse than random buys. Every transaction is a simultaneous buy/sell anyway. And I'm pretty sure that in the WSJ dartboard analysis, they sell the prior holdings at the same time that they purchase the new ones.