Is the stock market +EV?

[RiverRider]

Is the stock market +EV? I mean, if we take every single action and add them together, would that amount be greater each year? And if it is, how can that be? Isnt that supposed to be that when someone makes money another one loses money?

[r3vbr]

Of course not. The market grows average 7% year since 1900.

It's not zero sum.

Here are my thoughts on this.

While it is true that the stock market is not a zero sum game, the question of whether it is or not really shouldn't be a concern. The reason why it is more of a non zero sum game (although arguably it isn't really an issue of non zero vs zero) is that the market creates wealth from nothing as a result of price appreciation.

Now, derivative markets such as futures are more a pure "zero sum game."

This, however, does not mean that trading stocks is easier than trading futures(although many would argue so due to other reasons such as easier risk control on a small bankroll and less perceived efficiency).

Your main objective should be developing a profitable strategy and not buy into a buy and hold forever strategy as a guaranteed winner in the long run.

[Sniper]

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Is the stock market +EV?

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Yes, the stock market is not a zero sum game. Wealth is created by an increase in the intrinsic value of the companies themselves.

[buffett]

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Your main objective should be developing a profitable strategy and not buy into a buy and hold forever strategy

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Yeah, those 'buy and hold' strategies are for suckers. Suckers like Walter Schloss, Wally Weitz, Chris (et al.) Davis, Jim Gipson, Bob Rodriguez, Seth Klarman, Marty Whitman, Arnold Van Den Berg, Charlie Munger, Rick Guerin, Bill Ruane, Tweedy Browne, Rich Pzena, David Polen, Bill Miller, Bill Nygren, Jim Barrow, John Neff, Mason Hawkins, the Kahn brothers, Will Danoff, Dodge & Cox, Charles Brandes, Michael Price, Glenn Greenberg, Bruce Berkowitz, Mark Boyar, Lou Simpson, Phil Carret, John Constable, Tom Russo, Jean-Marie Eveillard and Charles de Vaulx, Dave Dreman, David Knott, Phil Fisher, Max Heine, Eddie Lampert, Louis Lowenstein, Larry Tisch, Ralph Wanger, ......

...those guys are barely even multi-millionaires.

[Sniper]

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Suckers like Walter Schloss, Wally Weitz, Chris (et al.) Davis, Jim Gipson, Bob Rodriguez, Seth Klarman, Marty Whitman, Arnold Van Den Berg, Charlie Munger, Rick Guerin, Bill Ruane, Tweedy Browne, Rich Pzena, David Polen, Bill Miller, Bill Nygren, Jim Barrow, John Neff, Mason Hawkins, the Kahn brothers, Will Danoff, Dodge & Cox, Charles Brandes, Michael Price, Glenn Greenberg, Bruce Berkowitz, Mark Boyar, Lou Simpson, Phil Carret, John Constable, Tom Russo, Jean-Marie Eveillard and Charles de Vaulx, Dave Dreman, David Knott, Phil Fisher, Max Heine, Eddie Lampert, Louis Lowenstein, Larry Tisch, Ralph Wanger, ......

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Where'd you come up with this list?

Buy and hold forever, is a fine strategy... its just not the most optimal strategy today for a knowledgable individual investor.

[buffett]

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Where'd you come up with this list?

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My brain. These are my financial heroes.

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Buy and hold forever, is a fine strategy... its just not the most optimal strategy today for a knowledgable individual investor.

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Let's compare our after-tax CAGR's ten years from now. If you win, I'll buy you a beer.
-web

Please continue to buy and hold forever. Thank you.

[adios]

The book, A Random Walk Down Wall Street, will explain why the stock market is not zero sum. Investors in stocks are compensated by what's referred to as the "equity risk premium" which is the increased rate of return over bonds for taking more risk. What the ex ante percentage of this risk premium acutally amounts to is a subject of much debate in the investment world. For a thorough explanation of the equity risk premium and the theory behind it the book, The Equity Risk Premium by Dr. Bradford Cornell, is good. Basically what another poster stated is true, over time the valuation of the stock market as a whole increases. Somewhat of an oversimplification, the compounded rate of return over risk free bonds is the value of the equity risk premium.

[DesertCat]

Yeah, those 'buy and hold' strategies are for suckers. Suckers like Walter Schloss, Wally Weitz, Chris (et al.) Davis, Jim Gipson, Bob Rodriguez, Seth Klarman, Marty Whitman, Arnold Van Den Berg, Charlie Munger, Rick Guerin, Bill Ruane, Tweedy Browne, Rich Pzena, David Polen, Bill Miller, Bill Nygren, Jim Barrow, John Neff, Mason Hawkins, the Kahn brothers, Will Danoff, Dodge & Cox, Charles Brandes, Michael Price, Glenn Greenberg, Bruce Berkowitz, Mark Boyar, Lou Simpson, Phil Carret, John Constable, Tom Russo, Jean-Marie Eveillard and Charles de Vaulx, Dave Dreman, David Knott, Phil Fisher, Max Heine, Eddie Lampert, Louis Lowenstein, Larry Tisch, Ralph Wanger, ......

...those guys are barely even multi-millionaires.

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I doubt there is a single name on your list that's worth less than $100M. And a good number worth more than $1B. Boy that long term go it slow approach sure does pay off after a while.