What you're describing in your example actually would be considered zero sum if true. Thats why you have to look at it from the lifetime of the investment. Because that bagholder Alice when the shares fall to zero, would have lost $13 worth. So it all sums to zero over the lifetime of the investment. For some non-dividend paying stocks that go up and then go bust, you can say its zero sum. But actually even that is more complicated than that because of the complex flow of money during the IPO process where there can be net losers and actually negative sum, if one were to look at the trades themselves, since angel investors and founders acquire a lot of shares equivalent to being really cheap. But actually, the argument for stocks not being zero sum is because of redistribution of money from the corporation to its shareholders. Corporations live and breed in the economy and they make a lot of profit. So they are sucking as much money as they can from the economy. This money is then funnelled and distributed to the shareholders via dividends and buybacks. So actually, just looking at the stock market, these stocks actually can have net positive gain. Simply because they are just a money supply aggregator and distributor. But from the entire economy's perspective, everything is zero sum. One's loss is another one's gain and everything adds to zero. Of course, over time central banks print more money to keep the public float of money supply constant, but otherwise the economy at any snapshot is zero sum. Stock market being an aggregator of capital and distributor to shareholders, on its own, is often non zero sum. We have of course ignored all the frictional contributors, such as all the middle man in every transaction (like brokers and market makers) that bleeds away some money from the market. But provided there is net inflow of new investment capital, and companies continue to survive and distribute a high portion of money back to shareholders, the stock market is not zero sum.
Trouble with comprehension? I never said that. I'm only running with your example, since you're saying the stock market is a Koolaid drinking system and a game of musical chairs, implying the last man on at the ledge falls to nothing with shares at $0 saying the market is zero sum. If the stocks don't go to zero, then the game isn't over and you can't analyze whether or not it was zero sum or not.
The problem with your logic is that you forget that the stock market has a real built-in upside bias. On average, the S&P500 increases by 10% each year, for example. This statistical edge is what allows ALL stock investors to profit in the long run. Keep in mind that the equity market creates real wealth, while on the other hand games like the commodity or the Forex markets act like poker games, where losers simply pay the winners, no wealth and/or additional dollars are ever created.
I think you're getting confused here. And I'm not forgetting anything. You are simplifying things too much. Where do you think this "upside bias" comes from? It is explained in the money flow into the stock market and via dividend distribution. BTW, having upside bias is irrelevant to this conversation about zero sum. Over the lifetime of a stock, it can have upside bias 99% of the time and then fall straight to zero on the last day. But either way you cut it, it doesn't relate to the discussion about zero sum or not. The notion of wealth creation of equity investing, judging only from the eyes of an investors POV, as explained earlier, is due to companies streaming capital from the economy and into the capital markets and into investor's pockets with buybacks and dividends. Then this wealth transference is held by the investors and often not adjusted. This capital does not often flow back into the economy by way of spending. This thus allows for equity investing to not be zero sum. In reality, when you look at it from a macroeconomic perspective, its not really wealth creation. The capital markets are merely a wealth redistribution system that allocates capital to efficient enterprises. Thats it. Companies don't create wealth, it just aggregates the money supply to itself through its economic efficiency. After that, the money stays in the capital markets as soon as it is distributed to its shareholders. Then central banks print more money to keep the economy's money supply constant. Anyway I don't see where you're going. You seem confused, putting words in people's mouths, and taking the subject matter off topic now.
No offense. But you're clueless and confused. I'm only running with the examples you're providing. And you've been going off topic. I'm not saying all stocks go to zero. I still dont think you grasped this point yet. "Of course only the last unfortunate buyer is left with the "hot potato" and will experience a loss when the music stops." Do the logic on this. Assume frictionless trades. Buyer seller buyer seller. Prices goes up and go and the last holder, then zero. This is a zero sum trade over the lifetime of the trade when you aggregate all trades and all past market participants. Someone won and someone lost. Heres a real life analogy: Pets.com or any dotcom company that went up then went bust.
Trading It is zero sum in one sense but not in a broader sense. The key is determining if other traders derive utility from trading that is not bound by the closed system of the markets. For example: -hedger might on average contribute $$ to the markets but that loss is offset by his cash position or the added stability that forward pricing gives to his operational business. -Governments intervene in markets in order to fulfill policy objectives. It could be said (I think realistically) that much of Q/E was a massive injection of money into the market pot that could then be won by traders, speculators, and "investors". Governments manipulate (say) F/X to goose their export sector (or whatever) and it is not profit minded within the closed system of the market -governments peg short term rates which causes freebies for speculators and the financial sector (such as yield curve riding, etc). -It is well known that time-weighted returns exceed money weighted returns in every financial product that exists. This means that investors are not able to behave rationally and as such, can be counted on to not be rational in the future. It is an open question in my mind if the market could even accommodate a 100% rational world of investors as all good ideas (such as long term investing) have capacity constraints beyond which additional capital is not rational. Informed or intelligent speculators can pick up the lose change from the above "contributors". As I said is zero sum in one sense (the sense of the closed system of the market) but not in another (There are net contributors to the pot that can be relied upon, do to other externalities).
Trading is a negative sum game. This is casino. Lot of losers give money to few winners. One big winner, the casino (broker). Of course some losers could think they are winners because they had some luck. But at the end, they give all to the broker and the winners. And newbies arrive to replace the dead losers. Winners stay and enjoy fresh meat. "On a long enough timeline the survival rate for everyone drops to zero. "
Yeah, right. The S&P500 alone returned about 10% a year on average, since inception. And here are the returns for the DOW JONES, since 1975: http://www.1stock1.com/1stock1_139.htm Please do your homework before posting, thank you.