Comments on: The Zero Sum Game http://theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/ Information and resources for those looking to learn about trading and the markets Sat, 04 Feb 2012 14:17:59 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Stock Trading is Not Zero Sum | The Essentials of Trading http://theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-16064 Stock Trading is Not Zero Sum | The Essentials of Trading Thu, 07 Jan 2010 14:51:50 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-16064 [...] addressed the general zero sum question previously in the post The Zero Sum Game. Let me tackle stocks specifically here, [...] [...] addressed the general zero sum question previously in the post The Zero Sum Game. Let me tackle stocks specifically here, [...]

]]> By: John http://theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-13803 John Sun, 29 Mar 2009 23:43:59 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-13803 <i>But you failed to reach the conclusion of selling the stock at 10,000 and taking 10k out of the pot…thus resulting in a decrease in the pot size....</i> Cristian, Think about what you've outlined here. If I sell the stock someone else must be buying it from me for that 10k. As such, there is no decrease in pot size, as you put it. Using your example of 10,000 shareholders, how are the 10,000 new investors acquiring their shares? From whom are they buying? And to whom am I selling my share? The shares of a stock are fixed (excluding company issuance an buyback) so for one investor to sell his shares another must buy them and vice versa. That transaction only changes the value of the pot to the extent that it alter the price of the stock at that point. John But you failed to reach the conclusion of selling the stock at 10,000 and taking 10k out of the pot…thus resulting in a decrease in the pot size….

Cristian,

Think about what you’ve outlined here. If I sell the stock someone else must be buying it from me for that 10k. As such, there is no decrease in pot size, as you put it.

Using your example of 10,000 shareholders, how are the 10,000 new investors acquiring their shares? From whom are they buying? And to whom am I selling my share? The shares of a stock are fixed (excluding company issuance an buyback) so for one investor to sell his shares another must buy them and vice versa. That transaction only changes the value of the pot to the extent that it alter the price of the stock at that point.

John

]]> By: Cristian Enache http://theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-13801 Cristian Enache Sun, 29 Mar 2009 16:21:22 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/06/22/the-zero-sum-game/#comment-13801 you stated : " If you buy Google at $10 and it runs to $10,000 then it represents a growth in your assests, but not a growth in someone else’s liability" But you failed to reach the conclusion of selling the stock at 10,000 and taking 10k out of the pot...thus resulting in a decrease in the pot size, which means that if all the investors want to cash out...the pot will be given to them minus the 10,000 dollars you took out..which means it IS a zero sum game because the last to get out gets what's left over after you've taken the 10 k out. It is a growth in YOUR asset, but a decrease in someone else's ONLY if no other investor comes in to replenish that 10k you took out of the pot. example: 10 thousand investors put in 1 dollar in the pot...thus the pot is $10,000....now, the stock is worth 2 dollars...so 10 thousand more investors put in 2 dollars each...putting in $20,000 in the pot...the pot is now worth $30,000 and you have a stock that's worth 2 dollars. So you take your profit of 1 dollar..meaning you take out 2 dollars...doubling your investment...only you did not take out 1 dollar..you took out 2..meaning that dollar had to come out of somewhere..and it did...it came from the new investors buying the stock at 2 dollars...now unless new investors come in, the stock will be worth what it is..minus the 2 dollars you took out...therefore, one of the new investors has just lost 1 dollar. you stated : ” If you buy Google at $10 and it runs to $10,000 then it represents a growth in your assests, but not a growth in someone else’s liability”

But you failed to reach the conclusion of selling the stock at 10,000 and taking 10k out of the pot…thus resulting in a decrease in the pot size, which means that if all the investors want to cash out…the pot will be given to them minus the 10,000 dollars you took out..which means it IS a zero sum game because the last to get out gets what’s left over after you’ve taken the 10 k out.

It is a growth in YOUR asset, but a decrease in someone else’s ONLY if no other investor comes in to replenish that 10k you took out of the pot.

example: 10 thousand investors put in 1 dollar in the pot…thus the pot is $10,000….now, the stock is worth 2 dollars…so 10 thousand more investors put in 2 dollars each…putting in $20,000 in the pot…the pot is now worth $30,000 and you have a stock that’s worth 2 dollars. So you take your profit of 1 dollar..meaning you take out 2 dollars…doubling your investment…only you did not take out 1 dollar..you took out 2..meaning that dollar had to come out of somewhere..and it did…it came from the new investors buying the stock at 2 dollars…now unless new investors come in, the stock will be worth what it is..minus the 2 dollars you took out…therefore, one of the new investors has just lost 1 dollar.

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