spike, you are correct about the stock market but wrong about the futures market. i will explain this again. there is a very significant difference between futures (and options for that matter) and stocks. i have already explained this, but you need ot keep rereading this, and/or read up on futures because if u think futures are not a zero sum game, you don't understand futures. a stock represents ownership of a company (a portion thereof) a futures contract does not. a futures contract is an agreement, a binding one. for EVERY long futures contract, there is a short futures contract to offset it. ditto for options. somebody WROTE the call or put you bought. futures aren't written, but they necessarily have an offsetting futures contract. they have to. by their nature. that is not the case with stocks. futures have somehwat of a different purpose than stocks. futures are used for - speculation, for hedging, but essentially they are the ultimate price discovery mechanism FOR the underlying entities they represent. they are pure supply/demand vehicles. futures are symmetrical. that is what makes them zero sum (less than zero sum whne including commissions, but let's spare that complexity for now). stocks are not symmetrical THAT is the difference again, if u think futures are not zero sum, you need to read up. it is not arguable. it is definitional at the most basic level. futures contracts can be created out of thin air, because they don't represent a portion OF the S&P, Dow, etc. they represent two opposing parties making an agreement regarding that underlying basket of stocks. futures also, unlike stocks, have to be rolled over, since futures contracts have an expiration, etc. but that might make the issue even more complicated for you. of COURSE you would participate in the growth of the economy by being long the futures from the past (assuming we are not talking about the Nasdaq from 2000 to 2005 ) , but you ARE participating in a zero sum game in the futures. you are not in stocks.
Ok DJIA 1/1/1900 at 68 DJIA 2006 at 11200 That is a growth of less than 5% annually and this with the hindsight of been invested in the fastest growing economy of the western world. Try doing the math including the markets that a conservative investor would own back in the 1900. That said, for a stock investor to achieve returns more than 5% annually he must take them from someone else¢s pocket. If not the math don¢t work out. This is why I claim the stock market is very close to a ¡zero sum game¢.
http://finance.yahoo.com/q/bc?s=^GSPC&t=my Every return above 0% proves that stock markets are not zero sum. According to Yahoo S&P was at 16 in 1950. This gives a compounded rate of return of about 18%.
first of all spike, if it's above 0%, it's not a zero sum game things aren't "kind of " a zero sum game. they either ARE or they aren't furthermore, your DJIA example of compounded return does not take into account of dividends. DJIA stocks tend to pay dividends that EXCEED the average dividend The yield for the DJIA, DJTA (dow jones transport average - recently hit an all time high btw) and the S&P 500 has historically moved between a range of 3% and 6% . The normal yield range for the DJUA (dow jones utility average) is between 3% and 12%. the current div yield on the SP500 is 1.7%, on the DJIA is 2.3%, the DJTA is 1.0 % and the DJUA is 3.5% you cannot discount dividends when computing compounded returns.
Spike if I am not mistaken, the s&p500 was introduced in 1957 and the older quote I have is December 31, 1956, at 46.67. But even assuming that we can read quotes from a log chart then 16 * 1,18^56 makes as 169633 so the value of 18% annually is wrong. Still you don¢t take into account that even those one digit annually percentage increases are with hindsight. What was the real growth of the Japanese stock market in the last 30 years? Who do you think the winners in those stock markets took their profits from? I don¢t make these points as an academic discussion, but being investing for many years in a stock market that the real growth (inflation adjusted) is negative I know that my profits are made in the expense of other investor losses. There are other issues that make the game even harder (for example IPOs are issued usually at a market¢s high so money inflows are more likely to take a beating that is not reflected in the indexes.)
Yes but you have to adjust for inflation also. 1$ in 1900 is not worth 1$ today. Also you still has the hindsight bias.
New argument (so I am back), but still wrong. You are correct only, if I plan to buy the stock always before it pays dividend, over and over. But since I bought it and held it for the next 25 times it pays the dividend, the above rule only applied to me once. Otherwise there would be no point in buying dividend paying stocks for a steady income. You do know that people actually make money that way? Now you also mention inflation. Guess what? Inflation effects everyone, even the daytrader. Thus if you make 10% a year and the inflation was also 10%, you just broke even adjusted for inflation, minus comissions. And that $25 stock if it pays dividends steadily for 25 years it will worth way more than $25 (the original purchase price) thus you had an income. Sure it was effected by inflation but so was your trading....
the fact that mkts punctually are a 0-sum game is actually irrelevant... what matters is the relative perception of value, as the 'masses' are made to perceive by clever-enough marketing... and thats all it is, perception... but as it goes up you want to be long whatever instrument / index, and as it goes down... the trick is in identifying which element of the everyday marketing b/s will be clever enough to move all the other retards... or be one of them... cheers...
the fact that SOME markets are not a zero sum game (stocks are not, futures are), is a matter of underlying market reality what does this have to do with TRADING? well, next to nothing. it has a heck of a lot to do with the market though. also, it is problematic to conflate investors with traders. investors have the opportunity to invest in the greatest wealth creation mechanism ever invented that is available to EVERYBODY with no entry fee but a commission - the stock market. it is 100% democratic- price is purely set by the aggregate opinion of market participants, and it is a mechanism that grows wealth, and will continue to do so in the long term as long as we (as a nation) do the same. this is really a phenomenal thing. you can own parts of great companies, and see your wealth rise along with the company. i invest (vs. trade) in companies i believe in and pay heavy attention to fundamentals and technicals i trade, otoh, with little regard to fundies. it's an amazing opportunity.