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Old 07-23-2005, 01:03 PM
Sniper Sniper is offline
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Join Date: Jun 2005
Posts: 704
Default Re: Buy and Hold vs Market Timing

[ QUOTE ]
money doens't come out of nowhere, you can't just *make* money appear in your bank without someone else losing it.

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In poker, this is true... Sum of all players winnings = Sum of all players losses + Poker Site Rake. No money created, just money shifting around.

In the stock market, when a stock's perceived value increases, money is indeed created out of nowhere.

Think of this very simplified example...
A new stock has an IPO, 3 people buy 1 share of the stock @ $10, a 4th person comes in and buys each of their shares (1 @ 11, 1 @ 12, 1 @ 13), the stock is now worth 13.

Person A - Bought at 10, Sold at 11 = +1 (cash)
Person B = Bought at 10, Sold at 12 = +2 (cash)
Person C = Bought at 10, Sold at 13 = +3 (cash)

Person D = Bought 1 @ 11, 1 @ 12, 1 @ 13, holding @ 13 = +3 (on paper)

Everyone made $$$.
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