Hello Buzzed! I would be inclined to agree with you if the following condition held; wealth generated from the houses flipped in the US would have to be equal to the wealth lost during the crash. I'm not actually sure about what the data says on this issue but I doubt that the house flippers made that much money. I'm not convinced that "trading" is zero sum however, the game of poker definetely is. Playing at a poker table is a "closed system". If you have six players at a table then money is just transfered from one player to the other. Provided there were no new "buy ins" during the playing period in order to maintan the "closed system" status.
Buzz, once more for you, Sir. YOu live in a street where ten others live. Each one of you got the same house and property so the value is equal ($100). Now your neighbor sells his property to me for $300 and I become your neighbor. Now, you got a friendly neighbor and guess what: Your personal balance sheet is $300 instead of $100. And guess what else: Your eight other friends (remember: ten properties in the street all equal) also got a property valued at $300. So we got an asset value of $3,000 vs. $1,000 in the begining --- the searched sum in "zero" sum game. And guess a last thing: Everybody in your street loves me. MK
What you're describing is a change in the "value" of an asset due to the fact that there are no "offers". In fact, if 2 of your neighbours decided to "sell" where would price go? I think that zero sum does not hold true in "thin" markets where prices jump without accompanying transactions. If this was a fairly balanced market you would probably get a zero sum condition due to the fact that the number of sellers and buyers would be about equal based on the value exchanged. It sounds a little odd... but I'm not sure that I can explain it any better. Let me try... Trading value as expressed by price does not necessarilly have to equal a "physical" (for lack of a better word) valuation.
Buzz, just one addition: Of course there can be another guy who is buying another ones property in our beautiful street for just $50 since two people want to sell aggresively and so destroying our wealth back to ten times $50, which is less than what we had initially. So back to the initial question: Is the trading of these properties a zero sum game? Answering this question is left to the reader. MK
Jes's: No matter whether there is one bid and one offer or none of both or trillions of both. What matters to the asset value is the market price which can be derived from a historical transaction price in absence of an actual bid / offer. MK
It's not ZERO sum game. It's is -ve SUM game for trader and investor because there are people who will always make money (like your broker, exchange, fund managers and goldman sachs). The only money that flow in market is "dividend" money. Everything else is a DRAIN on the stock market system.
Hmmm... Well if you take it that trading is a 50/50 odds game then in the "long run" you're bound to win as much as you lose. Meaning that when commissions are added, then you will indeed have a negative sum game. Uh oh...! Now I'm no longer sure what to think!
I haven't read through all the posts, so forgive me if this question has been raised. Is a poker game at a casino zero-sum? For every hand that is played, the house extracts a small fee. If the same group of individuals continue to play at the same table, moving chips back and forth amongst themselves, eventually there will be no chips left because the house will collect them all. Slippage and commissions are the small fees extracted by Wall Street. Depending on your time frame and trading frequency, these costs will have more or less impact on your ability to profit. The joke appears to be on us as traders, thinking we have a 50/50 chance, and any slight edge will push us over the top. In the meantime, the house keeps looking for more incentives to keep all the players in the game, swishing their chips back and forth. Yes, I know, the market continues to rise over time, making it possible for many of the players to show profits. How much of the market increase is based on continual inflation of currency?
I have long posted this paper -- back for nearly a decade. It was Harris' introduction that led to my 1st publisher. Smart guy. http://www.turtletrader.com/zerosum.html
I think some of you guys are really mixing apples with oranges. There are many commentators saying different things and I can't keep up with who had said what so I won't quote them. First off: The game theory. It is not my definition. It is the definition by mathematicians. I quoted something posted on wiki on the definition of the game theory. In a pure zero-sum game, as modeled in the game theory, it is a closed system. The winning players are paid off by the losing players. This is ignoring the house taking a small cut. (Or assume we have no house. Just players against players.) I said from that point of view, the futures market is a zero-sum game but the equity market is not a zero-sum game. If you add commissions taken by the brokers, then it definitely is a negative-sum game (I doubt if any dividends in the world added together can weigh more than all the commissions charged). Slippage: that's actually the gain by market makers or specialists (or other traders). They brought money to the pot too so you can't count them as a drain. Again this is from the point of view of looking at the equity market itself. This is a never-ending game. You can see the appearance of a perpetually inflating stock price on a given company. You can say nobody is losing money. Because the game has not ended. If one has to pick a loser, it would be the last person who just bought the stock because, presumably, he brings in new money. But this is not the end, because he hasn't sold yet. The company may go bankrupt, or the stock price may go higher still. From the perspective of the game theory, being a zero-sum would mean those who sold their stocks, their money must come from the pot - contributed by the new players. Can the stock prices keep going up forever? Yes. What explains it and what rules govern it is outside the scope of the game. (You are talking about inflation, and at some point a reset (devaluation), etc..) The housing market is different. One key is: the "value" of a house, or all houses, is created through credits. For every $100 you put in a bank, the bank takes your deposit and lend out $90 to other people. Who in turn would lend out $81. Who in turn would lend out $72.90 and so on. And in bubble environment, some lenders even broke the rules. So in this game, someone is constantly creating more chips. And when the housing bubble bursted, who stood the gain? Are you kidding??? Don't you realize there are plenty of homeowners, who got lucky or whatever, sold their homes at super inflatted prices? Like everything else, house prices can only continue to go up if there are demands for them. So far this world's population is still growing so it may not be a concern (at least not an immediate one).