Stock Market EV

[hmkpoker]

That's not the point. Four people in the isolated system can't generate more money than they already have. The money has to come from somewhere else. Their benefit has to come at the loss of someone else. This is why I think it resembles a zero-sum game (or negative-sum game like poker)

I did say the stock market is NOT a zero-sum game. I'm not saying it is!

-Chris

[hmkpoker]

I'd like to point out that I was never asserting that the stock market is a zero-sum game; only that it manifests some of the PROPERTIES of a 0sg. Poker is negative sum, but one's profits always come necessarily at the losses of someone else in a proportional manner.

The stock market, I recognise, is even further removed from this model, because the company's profits and losses introduce an element that can be beneficial or detrimental to all.

However I would sharply contrast the stock market with a genuinely non-zero sum like, say, the basic economy, where what benefits one often benefits others.

Page 6-7 from "Trading for a living," not "Come into my trading room" I don't feel like typing out 2 pages of copyrighted text into this form either. But here it is on amazon:

http://www.amazon.com/gp/reader/0471...3D#reader-page

-Chris

[Sniper]

[ QUOTE ]
That's not the point. Four people in the isolated system can't generate more money than they already have. The money has to come from somewhere else. Their benefit has to come at the loss of someone else. This is why I think it resembles a zero-sum game (or negative-sum game like poker)

[/ QUOTE ]

You are right that the players can't generate more money... an intrinsic value change from outside the system creates the wealth... which is exactly why its a non zero sum game!

The value of the commodity being traded changed and all owners of the commodity benefit from the change in value.

To add to the example... assume a 5th player (lets call him a long term investor) ... he bought a share of stock when it was $5... his share is also now worth $13.

The benefit does not come from a loss to anyone else... this is one of the reasons that the stock market is the greatest wealth builder in the world!

[Sniper]

Chris,

This is what you said...
[ QUOTE ]
If you have read Alexander Elder's books, he has an entire chapter on this. The Stock Market is not a Zero-Sum game, it is less than that. Brokerage commissions and SEC fees make it a losing venture unless you have an edge. This is why most traders lose.

[/ QUOTE ]

Maybe I'm just not understanding what you were trying to say...

Could you please explain what you mean by the market being less than a zero sum game? (and how that relates back to anything in Elders book)

The market is a minus-sum game. You buy 100 shares of XYZ at $10, you pay $1010 including a $10 comission. You sell those same shares at $10. $(1000 - 10 ) - 1010 = -$20

That isn't even including SEC fees. You bought and sold your stock at the same price so you should be even, right? Wrong, you are down, therefore the market is a minus-sum game. This is exactly what Elder states if you read that link. I'm not even including slippage in this argument as I don't want to get above peoples' heads.

-Chris

[squiffy]

The pie is not fixed at a constant size. The pie is constantly growing.

That's like saying the population of the U.S. is zero sum. The stock market is NOT a game involving 52 cards in a deck.

.....fiat money supply

[Sniper]

Chris,

commissions are part of the system... that wealth is not destroyed, it is simply shuffled to another player, in this case your broker. In the long run, the entire system is a positive sum game because wealth is created (by factors outside the system).