Merriam Webster Online Dictionary Main Entry: zero-sum Function: adjective : of, relating to, or being a situation (as a game or relationship) in which a gain for one side entails a corresponding loss for the other side ------------------------------------------ This is easy to see if you try to find an instance where there are no losers and all participants are winners: an impossibility. Step 1: Google IPO at $85 (gain $85) Trader "A" buy at $85 (lose $85) Step 2: Google rise to $100 "A" sells at $100 (gain $100) "B" buys at $100 (lose $100) Step 3: Google rise to $200 "B" sells at $200 (gain $200) "C" buys at $200 (lose $200) There will never be a step where a gain is not offset by a loss. Count in commissions and its easy to see that this is a negative sum game.
IPOs are not uniformly distributed over time. In my country IPOs and other stock issues raised 250 million $ during 2004 but more than 5 billion $ in 1999. On top of that the management owns big part of these new companies that distribute them to the investors after entering the stock market, so even more money is exiting the system.
You can call me all you want, ignorant, shark, vulture. However, from my experience, I take aid and comfort from the cash in my bank account (all practical and none theoretical). May be I am humbled by it, and as such realize that my bank can then make a loan for someone else to be able to eke out an existance, or buy their stuff from China. I made the effort to complete the circle. To now, it has been a long and steep learning curve for me, and will continue to be so, to think any other way would be ignorant.
I don't like to see bad math, so I have to correct it: In step 2. when A sells for $100 his gain is not $100 because he got it for $85, so unless you were educated in the American public school system (understandable disadvantage), the correct gain is for A: $15. When B buys is for $100 he doesn't have a loss or gain (yet). He simply owns a stock. He is going to have a gain or loss WHEN he sells it. So in step 3. when B sells it for $200 he has obviously a gain of $100 (I spell it out: 200-100) and C again has no loss, he simply owns a more expensive stock. At this point the company took $85 for each stock issued, and C holds one stock for $200. Only time and the company's business will tell if C is going to make money on it or lose, but in this example so far it was a POSITIVE SUM game, because everybody made money. Trader A has $15 gain, B has $100 gain and C has the stock. Man, I already spelled this out in my voting options, why don't you guys read what was said before??? In the phase when the company generates wealth (or the stocks flies) it is a positive sum game and when the tide turns it is a negative sum...
Sigh. For people who can neither read nor think, I have nothing more to say. BTW, check your grammar before posting next time.
Ever wonder how different life would be if stupidity hurt? If stupidity hurt, he'd go through life on a morphine drip. <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=999719>
No, please do post again. I would love for you to explain the stock market is like a lottery and how it loses most of the IPO earnings put into it. That clearly contradicts the numbers I have found. PS, sorry, I might have missed a few commas. You need to check spelling before you post next time.
I'm counting in absolute dollar gain/loss per step without regard for the previous step. IMHO counting in previous steps only makes it much more confusing. When B buys for $100 he lose $100. 99% of the "positive sum game" argument I have seen make this error. They assume stocks = money. Stocks are just pieces of paper, you only get money when you sell them. ----------------------------------- Thus we find the bottleneck. If we assume stocks = money. Then the game is positive sum. At any point in time some participants are going to be holding money and some holding stocks: they're all considered winner. But then if you do not count stocks = money until they are liquidated, then the game is zero or negative sum. I tend to favor not counting stocks as money for the same reason that Poker is considered a zero sum game. Players bring $1000 to a poker table. They pay the banker $1000 for $1000 worth of chips. Are the chips (stocks) counted like money? If so then there are $2000 worth of chips + money in the game, Poker is a positive sum game. If not then the same $1000 remains, it is a zero sum game. Its just how you look at it. Thus the key to this analysis is "C has the stock". Does it count as a gain or a loss? If you count the chips as a gain, then it is positive sum. If not, it is zero sum: A gain $15. B gain $100. Company gain $85. Total gain = $200 C bought stock for $200. Total loss = $200 Gain financed by loss. No new money is created. Hence, zero sum. Therefore, you are right and so am I depending on how we look at things.