“It’s a zero-sum game, because there are always winners and losers in the stock market.”
Is this true, outside of options? Most people are long and the stock market has always been on an uptrend.
Is this true, outside of options? Most people are long and the stock market has always been on an uptrend.
However, he may be talking about pure trading, a.k.a speculation, which is very close to a zero-sum game. If you are not in for the dividends, yes, that's close to a casino where the banks who charge for transactions are the inevitable winners.
I wish we followed Warren Buffet's advice and forbid to sell a stock less than 6 month after buying it. I also don't see any interest in making the stock prices change every nano second. A quote a day can be enough if you are an investor, not a speculator.
Well, there isn't any interest in it per se, but that is intrinsic to how fast we can make trades... Somebody offers the lowest sell price and somebody offers the highest buy price. The "value" constantly changes as those two highs and lows fluctuate based on who decides they'll sell for lower than the lowest offer or who decides they will buy for higher than the highest bid.
Unless you're saying that those offers/bids should only be accepted once/day and can't be changed until the next day? That's the only way I could forsee changing the quote once/day.
Send orders all day, clear them once a day. Calculate the resulting quote.
Let go of the illusion that the real value of companies change every nano second. The fact that stock exchanges close at night and that for 12 hours, values don't change proves that it is not a necessity.
Having 12 hours instead than a few seconds to think about the impact of a given news on the stock market is going to give room to breath for actual investors.
Do you know if the share of real GDP for the bottom 10% (or in general, bottom x%) of consumers grown? And is there a well-known term/metric for this?
Regardless, if someone does bid up the price of onions, it will typically trigger increased production of onions as farmers can make more profit by growing onions vs. another vegetable. This increased supply will pull the price back down.
And in the credit market - after all the good debtors are served, and there's still demand for new credit - bad debtors start being served. This keeps on going till it bursts (like in the housing bubble).
I'd just look at it in a slightly different, perhaps more optimistic way. The fact that this investment has the highest ROI means that society as a whole would benefit from injecting additional capital into that investment.
In that sense, you're right that other investors have a less desirable price. However in theory at least, everyone is better off since that investment now has more capital, and is able to produce more output, positively contributing to the overall economy and increasing the size of the overall pie.
Fun fact: over 60% of the trade volume on the stock markets comes from bots. If you have enough of a superiority illusion to think your daytrading game these days can outplay the MIT PH.D Quant traders that wrote HFT bots for hedge funds, then you're in for a surprise.
I don't have the exact Peter Lynch quote but he said something to the effect that any period of less than two years in the stock market and you're basically entering a casino. Any period of greater than 2 years and you're investing.
Some other investor said that you should give a company enough time to use and generate a return from the money it received from selling it's stock before you fundamentally expect to see the returns.
For any kind of asset, the ability to transfer it has value. When someone needs to buy a new car, they often sell their old car to a dealer at a price that is lower than what they could get if they sold it to another individual. They do it because it is more convenient and/or they can't wait around for the right buyer to come along. A dealer has a better idea of the car's value and is willing to put it into inventory until someone buys it at a higher price. He takes a risk he might have to wait longer than expected to sell it again (which incurs more inventory cost), but he trades a lot of cars, so on average, his relative risk is lower than yours would be. He essentially charges you a fair price for this service. Even though technically you might say you lost on the deal, both sides are winners if the price was reasonable.
In a similar way, a stock trade can be a win-win situation. One trader may be willing to do the transaction at a discount because they have a better way to use the money or because they need to reduce their risk. Another trader may know more about the stock and/or have a different risk profile, so he is willing to take the risk of holding the asset until a profitable transaction is possible. This provides a win-win for both sides if the charge for the service is reasonable.
Of course, there are traders who are detrimental to a market and provide no value, just as there are crooked car dealers. That doesn't invalidate the value of good trading just as it doesn't invalidate the value of good car dealing.
E.g. you could give someone insurance on their stock position if you can take the risk. This allows them to participate in the game so you both benefit.
Another is that you might be able to lend more cheaply than the other can loan but they want to leverage up their portfolio. With options you can effectively make a cheaper loan to them to purchase a specific product. They lend more cheaply, you make part of the spread.
Stocks are not a zero-sum game. They have sustained value, so when I sell you a share of stock, you get the share, and I get money equal to the value of the stock.
One might argue that day trading is roughly a zero-sum game, if we make the simplifying but inaccurate assumption that the values of stocks don’t change across a trading session, and assuming that everyone goes home each night with all positions closed out.
https://dqydj.com/sp-500-return-calculator/
Dividends make a massive difference. It's in fact not a secondary but a primary driver of long term profit.
Shares don't give dividends. Companies give dividends. Shares are just how they work out who to give the money to.