Brains or Bulls Gentlemen

Ok men. Its been bull market for a long time now. A lot of you guys have all this confidence from last year and your wallet fat. This year, the market is going to see what they can take back from you. Believe me, Mr. Market is going to take it back.

So I ask you, Brains or Bulls? You either have one or the other. Brains or Bulls.

 

Balls...

and preferably Iron Balls

 

I say nope.... market will be up +17% across the board like Cramer says...


The market is here to create wealth.. not destroy it!!


NO RISK$$

 

Let me cheat and say DISCIPLINE.

DISCIPLINE to sticking to your trading plan.

 

Here lies a paradox.......Market is a Zero-sum Game.
Meaning in order for someone to win money another has to lose.

So, the market gives it, and the market takes it away. sounds like something out of a bible.

Point being is some people win money in the markets, other lose. For example, those two hedge funds that went down under. As well as, all of those supposably 90% of all new traders that lose money.

 

The market is not a zero-sum game.

 

I don't believe the market is clear-cut in being a zero-sum game, maybe certain derivatives are.

Some could say it's a negative-sum game, as both sides of trade lose money to the house - the brokerages that earn money on a trade. Certainly a game of poker played in casino is no longer zero sum because the house rakes hands.

On the other hand, a lot of the money that goes into the market actually could create more money through multiple expansion, the same way that banks "create" money. In this aspect, it could be positive-sum.

 

A person invests for many years and thanks to compound interest retires. He sells his stocks to another person that does the same on and on.

The market is a positive-sum game just as all exchange is a positive-sum game. Are we going to say that international trade is zero or negative-sum game? Of course not. All exchange has a positive expectancy, not necessarily per individual but over the long-term and on a societal basis.

A more realistic trading example is still the same. It is entirely possible that while you are selling and getting out of a position whose risk profile is something you dislike that someone else can be buying into a position with a risk profile they like. As long as the two of you are just on different points along the securities market line you are just exchanging fair value for fair value but at risk profiles that are respectively more preferable which actually creates value.

Now that's a lot of academic reasoning but it's still true (albeit idealized). Think about it. If we assume that a person can make money with an accuracy of entering into winning trades <50% then someone was also on the other side of those transactions. But yet you can still make money because you have a positive expectancy. You both can have a positive expectancy. The other party has higher accuracy with smaller gains and you have lower accuracy with bigger gains.

I will say that ultimately the longer term the trading style the more positive-sum the game. If we constantly adjust for risk then really the game is only positive-sum in the sense that exchanging fair value securities with different risk profiles to enter into positions we are more comfortable with adds to utility. Transaction costs are not relevant if we assume that all parties that exchange pay similar costs and so this drags down the market return (because in order to participate in the market return all players incur universal costs).