Is the Stock Market a Zero-Sum Game? Yes and no. John Rekenthaler Dec 20, The Basics The initial way to view the stock market is as a zero-sum game. With any stock trade, 25/07/ · What is a zero-sum game? A zero-sum game is actually a game theory. A zero-sum game situation is when a person gains something, while another loses the equivalent of Yes, the stock market is a zero sum game. Think about it, no money is created. No value is created. Value is created when the perception of value is instilled in the market by market 17/07/ · The answer depends on how we decide to participate in the stock market. The stock market is not a zero sum game when investing over the long term. However, the 28/01/ · When it comes to the stock market, the majority assumes that the market is a zero-sum game. After all, the money made by someone should come from a source and most ... read more
An increase of 2. The story of many individual stocks is much more promising. This increase in the Level of NIFTY, or any other stock, leads to actual wealth creation, and people do make actual gains and gains and lot always supported by loss made by other people. In the share market, trades are based on future expectations and because of the different risk tolerances of the participants. They might have made substantial profits and willing to book profits.
Here, both the parties can be winners, as the buyer of the stock now can further sell at an increased price when shares have made sufficient gain according to that investor. Therefore one investor selling shares to others at profit doesn't mean the buyer will incur loss only. Taking a Company-specific example, shares of RIL at the start of this decade traded around Rs Factoring the stock splits and bonuses , and a total market valuation of around 3.
The company has now breached even level and a valuation of over 15 Lakh Crores. There have been actual wealth creation of over 10 Lakh Crores and people have gained money without others losing their investment and there has been a net increase in wealth for more than 10 Lakh Crores.
Added to this is one important factor that clearly removes every confusion in this regard. A dividend is an additional amount paid to investors over and above any capital gains made as profit appropriation.
Being part-owner of the company, investors are obliged to part of the profit in the firm. Therefore, as we have seen from these examples, unlike a Zero-sum game there is real wealth creation in the stock market due to increased company valuation because of better future prospects and net gains and more than net losses, If shares price went up for that period of time. So the Stock market is not a Zero-Sum Game. Must contain atleast 1 uppercase, 1 lowercase and 1 numeric characters.
Minimum 8 characters. There are two types of options contracts:. However, options contracts do not represent direct investments into companies. With only two options available, there always had to be a clear winner and loser, right? The stock market is a complicated web of different players and financial assets. Sometimes it is a game of checkers where there is a clear winner and loser.
Other times it is a game where everybody participating can win or lose. It honestly depends on how we decide to participate. Is the stock market a zero sum game? The answer depends on how we decide to participate in the stock market. For this to make more sense, we first need to understand what a zero sum game is.
What is a Zero Sum Game? The best real world example of a zero sum game is flipping a coin. When flipping a coin, there are only two outcomes that can occur: you can either win or lose. Such is the case if you are buying Motley Fool stock recommendations. They might have made a substantial gain and are looking to lock in this gain. Or they may decide there is another investment that better fits their needs.
While investing in stocks, mutual funds, and ETFs are not considered to be a zero-sum game, trading options and futures could be classified this way. This is because investors are making bets based on information they have as to the future price of a stock or commodity. Most times when one investor is right, the other investor is wrong, creating a winner and loser in this scenario.
So how do you go about making money in the market, regardless if the market is moving higher or lower? There are a few things you can do. It is not a given that one party in the transaction is a loser while the other party is a winner. Both can be winners or both could be losers. And one could win and the other could lose. That is gambling, not investing. Skip to content Investing Is Not A Zero-Sum Game — Leads To Money For Smart Investors Ask the majority of people about investing and they will probably tell you that when the stock market rises, everyone wins and when it drops, everyone loses.
What Is A Zero-Sum Game You now know that investing is not a zero-sum game. It takes into account various factors, including gains, losses, individual behaviors, and more.
Many people think of the stock market as a zero-sum game. But whether it is really a Zero-sum game, or just a scheme adopted to justify the stock market losses and keep retail investors out of investing. We will understand. A zero-sum game is one in which no wealth is created or destroyed.
So, in a two-player zero-sum game, whatever one player wins, the other loses. In a zero-sum game, gains for one person causes losses for another person in an identical amount. The net change for everyone involved is zero and no wealth is created or destroyed during the transaction.
A simple example of such a Zero-Sum game can be a Game of chess or Rock, Paper Scissors where the win for one person means a loss to others. On a practical front, or where actual monetary transactions are involved simple gambling or a betting game is an example of a Zero-Sum game, where the winner will win an equal amount than the loser of the bet will lose.
These all are examples of the Two-Player Zero-Sum game. But there is a multiplayer zero-sum game as well, where the net loss of all losers is what the total gaining of the winners are. A number of sports fantasy games too that are emerging in recent times are zero-sum game neglecting the platform fees and commission , as no actual wealth is created in any of these cases. The stock market is most often confused with a multi-player Zero Sum game, as there are numerous players in the market and it is assumed that what other people will lose is what others will gain.
But this is not the case. The Stock in the long run is not a Zero-Sum game and there is real and actual wealth creation in the stock market. In long run, to better future prospects, increasing business potential and overall economic growth, the overall market value increase of all the company and stock market is not a zero-sum game.
The stock market is a place for investment into businesses and businesses grow and expand and with growth and the increased output of the businesses, the profitability and future prospects of the businesses improve. This translates to an increase in the valuation of the companies and businesses, which lead to actual value creation and wealth addition in the stock market. When you buy a share of stock, you are actually acquiring a percentage of equity in a certain company and as the part ownership of businesses of higher value due to improved growth, this converts into actual wealth creation in the stock market, which has increased in value due to better future prospects, and people in long turn gain more than loss by other as there is an actual increase in valuation levels.
For Example, NIFTY at the start of , was close to levels. Which by the start of has crossed 12, levels as level. An increase of 2. The story of many individual stocks is much more promising.
This increase in the Level of NIFTY, or any other stock, leads to actual wealth creation, and people do make actual gains and gains and lot always supported by loss made by other people. In the share market, trades are based on future expectations and because of the different risk tolerances of the participants.
They might have made substantial profits and willing to book profits. Here, both the parties can be winners, as the buyer of the stock now can further sell at an increased price when shares have made sufficient gain according to that investor.
Therefore one investor selling shares to others at profit doesn't mean the buyer will incur loss only. Taking a Company-specific example, shares of RIL at the start of this decade traded around Rs Factoring the stock splits and bonuses , and a total market valuation of around 3.
The company has now breached even level and a valuation of over 15 Lakh Crores. There have been actual wealth creation of over 10 Lakh Crores and people have gained money without others losing their investment and there has been a net increase in wealth for more than 10 Lakh Crores. Added to this is one important factor that clearly removes every confusion in this regard. A dividend is an additional amount paid to investors over and above any capital gains made as profit appropriation.
Being part-owner of the company, investors are obliged to part of the profit in the firm. Therefore, as we have seen from these examples, unlike a Zero-sum game there is real wealth creation in the stock market due to increased company valuation because of better future prospects and net gains and more than net losses, If shares price went up for that period of time.
So the Stock market is not a Zero-Sum Game. Must contain atleast 1 uppercase, 1 lowercase and 1 numeric characters. Minimum 8 characters. Is Stock Market a Zero-Sum Game? Kundan Kishore Curator of A Complete Course On Indian Stock Market. By signing up, I agree to the Terms of Use and Privacy Policy. Create New Account Log Into Existing Account? Get started. Forgot Password? Login Sign Up. Unable to Login? We are here - hello kundankishore. Cart Items. There are no items in your cart Add More.
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25/07/ · What is a zero-sum game? A zero-sum game is actually a game theory. A zero-sum game situation is when a person gains something, while another loses the equivalent of The Stock in the long run is not a Zero-Sum game and there is real and actual wealth creation in the stock market. In long run, to better future prospects, increasing business potential and 17/07/ · The answer depends on how we decide to participate in the stock market. The stock market is not a zero sum game when investing over the long term. However, the 28/01/ · When it comes to the stock market, the majority assumes that the market is a zero-sum game. After all, the money made by someone should come from a source and most Is the Stock Market a Zero-Sum Game? Yes and no. John Rekenthaler Dec 20, The Basics The initial way to view the stock market is as a zero-sum game. With any stock trade, Yes, the stock market is a zero sum game. Think about it, no money is created. No value is created. Value is created when the perception of value is instilled in the market by market ... read more
Nonetheless, at least in theory, active mutual fund managers could participate in a positive-sum market before costs , if corporations were obliging. They might have made a substantial gain and are looking to lock in this gain. Its in order for companies or people with great ideas to increase happiness and efficiency go in order to gain access to capital. In this post, we are going to demystify this question and try to answer whether stock investing is a zero-sum game or not. In the share market, trades are based on future expectations and because of the different risk tolerances of the participants. Such is the case if you are buying Motley Fool stock recommendations. For Example, NIFTY at the start of , was close to levels.
Perhaps it will sometime in the future. Options and Derivatives Derivatives If Down Than When? Easiest Stock Screener Tool! Popular Courses. Investing The Investopedia Guide to Watching 'Billions'. Oculus is