when you sell a stock, you basically are selling the future opportunity and risk to the buyer. The question is... who is smarter?!?!
I thought I spelled it wrong "Ponzi" THANKS.. I did like my little story and It can apply to the market...and the illiquidity of a market during a correction. (Not saying we are going there).. Corrections are kind of like "Ponzi" skipping out of town... --------------------------------------------------------------------------------- AKA "BLACK MONDAY" When: October 21, 24, and 29, 1929 Where: USA ---A string of terrible days led to a more than 40% drop in the market from the beginning of September 1929 to the end of October 1929. In fact, the market continued to decline until July 1932 when it bottomed out, down nearly 90% from its 1929 highs. --------------"Ponzi skips town"--------------- ---Americans were as bullish as ever. The stock market was guaranteed to make everyone rich as the first world war had been won, and industrialization was resulting in previously-unimaginable luxuries. It was a good time to be American. ---------------------------------------------------------------------------------- THE CRASH OF 1987 When: October 19th, 1987 Where: USA ---The amount the market declined from peak to bottom: 508.32 points, 22.6%, or $500 billion lost in one day. The largest one-day percentage drop in history. ---This was the crash that everyone expected but could not justify because of the work of the U.S. Securities and Exchange Commission. The SEC--which was established for the prevention of further crashes and fraudulent practices that had infected the stock market--was doing a fine job after the war and finally coaxed tentative investors back into the market in the sixties. "What the little guy is back--heard that recently" The SEC, however, could take investors to the proper information but couldn't make them think. In the early sixties and seventies, investors looked not at the value of the company but at the appeal of its public image and the vernacular used to describe it. The following kinds of over-embellished company sketches would attract the public eye. Investors were infatuated with these companies, which somehow represented some higher idea and purpose. EX. TODAY "GOOG","AAPL","HANS", "NTRI" Fortunately, the newbie chairman of the Fed, Alan Greenspan, was around to help fight off a depression by preventing the insolvency of commercial and investment banks. "What was that we corrected after a new Fed Chairman" ((Not saying these companies aren't good just some people LOAD THE BOAT UP not knowing anything, but they are talking about it on CNBC)) --------------------------------------------------------------------------------- The Asian Crash (or Crises) When: 1989-2004 Where: Southeast Asia but primarily Japan Percentage Lost From Peak to Bottom: 63.5% as of 2003. ---The Japanese have an uncanny ability to enhance what they adopt from the Americans (market economy). Sadly, the Japanese have picked up on crashes as well and made theirs a lot bigger than any one historical American crash. The crash of the Nikkei has morphed into a massive, surly bear that attacks any signs of recovery. It all started with the a boom/bull market of the 1980s. "Just don't get stuck with depreciating Paper" -------------------------------------------------------------------------------- The Dot-Com Crash When: March 11th, 2000 to October 9th, 2002 Where: Silicon Valley (for the most part) Percentage Lost From Peak to Bottom: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11. --------------------------------------------------------------------------------- The Florida Real Estate Craze When: 1926 Where: Florida The amount the market declined from peak to bottom: Land that could be bought for $800,000 could, within a year, be resold for $4 million before crashing back down to pre-boom levels. The prices were so inflated that to buy a condo-style property in 1926, you would've had to pay the same as you would now have to pay for a luxury home in the guard-gated communities in Miami ($4,500,000)--without adjusting for inflation! "SOUNDS FAMILIAR" As hindsight is always 20/20, we should take the time to highlight what we can learn from these past tragedies. First off, we should point out that most market volatility is all our fault. In reality, people create most of the risk in the market place by inflating stock prices beyond the value of the underlying company. When stocks are flying through the stratosphere like rockets, it is usually a sign of a bubble. That's not to say that stocks cannot legitimately enjoy a huge leap in value, but this leap should be justified by the prospects of the underlying companies, not just by a mass of investors following each other. The unreasonable belief in the possibility of getting rich quick is the primary reason people get burned by market crashes. Remember that if you put your money into investments that have a high potential for returns, you must also be willing to bear a high chance of losing it all. Another observation we should make is that regardless of our measures to correct the problems, the time between crashes has decreased. We had centuries between fiascos, then decades, then years. We cannot say whether this foretells anything dire for the future, but the best thing you can do is keep yourself educated, informed, and well-practiced in doing research.
We all remember the Qualcomm 1000 quote six years ago, before the Nasdaq crash. A few people shorted and made a lot of money. The people who lost may not be here to tell the tale. And those who shorted may be feeling guilty about making it. The US economy has a deficit and China has a surplus. At the top it may be zero sum, but underneath it... Bulls make money, bears make money and pigs get slaughtered... Just last month we hear Google 2000.
"at the top it might be zero sum" it is NOT zero sum. wealth is created. why is that hard to understand? look at the world today. look at the world 100 yrs ago. is there more wealth NOW? yes. where did it come from? it was created. i already explained how - increased economy of scale, innovation, etc. the stock market is no different the value of the market is gonna swing around in the short term, but in the long term, the market regresses to mean. that mean is roughly equivalent to the intrinsic value of the companies represented by these stocks. that is a basic proxy for the wealth created by these companies. it is not rocket science. it aint even debatable if you understand the underlying concepts.
Both sides have valid arguments to approve or disapprove. The fact, that one believe it's a zero-sum game make him to think, to be aware, that this is a very risky business. Then he must have an edge in order to survive. In contrast, one who believe it's not a zero-sum game make him to think it's about economy, about business, etc. Then he will go on cruise control and he's likely to be wiped out.
The federal reserve printed it from pieces of paper. That's pretty much the illusion of the whole thing.
"Both sides have valid arguments to approve or disapprove." there is a lot of arguable stuff in investing and trading that reasonable people can disagree on. there are some things that are simply a cold hard fact. this is one of the latter. it is empirically and definitionally provable that the market is NOT a zero sum game. strictly speaking, these may be valid arguments (against zero sum game) but they are unsound arguments. but i;m not gonna get all analytical reasoning to explain the difference. they cannot be sound arguments, but they can be valid. in layman's term, they are wrong. there are a virtually endless # of topics that are arguable in investing. and only a few that aren't. this is one of those "that aren't" wealth is a measurable quantity. you can quibble over details, but it is inarguable that there is more wealth NOW than there was 100 yrs ago (true on a USA basis. true on an international basis) since there is more TOTAL, it has not merely been transferred (which would be a necessary condition of a zero sum market), but has in fact in many cases been created. i am going to give you one example of how wealth is created. let's say every person in the world owns 10 lbs of wackawacka seed. the value of 10 lbs of wackawacka seed is that it can grow 1000 lbs of soylent green (it's people) per acre. johnny smith makes an invention. this invention (a super gizmo ray) when shined on the 10 lbs of wackawacka seed now increases the yield to 2000 lbs. the wealth (of this single product - i am simplifying the ecnomy obviously to a one item economy) of the nation just roughly DOUBLED. since everybody EATS 1000 lbs of soylent per year everybody in the economy had to use their wackawacka seed on themself. now, there is such a big surplus, that the surplus can be sold and/or far less people have to cultivate wackawacka seed. the person who invented the gizmo ray has seen his stock multiply by 10,000% based on his invention. where did this wealth come from? it WAS CREATED. it is not a zero sum game.