Investing stock market zero sum game define
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Speculating I define the difference between investing and speculating as the level of certainty that can be reached concerning the key aspects of the deal. For example, when Warren Buffet invests in a company, he conducts extensive research into all aspects of the business and industry and even talks with the principals. By the time he invests his money, Buffett has taken a large part of the risk the speculative part out of the equation. I suggest that the real investors in the stock market scenario are the large shadow banks who employ traders.
Wall Street banks profit from your risk in the same way by using your money to make trades and charging a commission to do so. Financial Leverage Your investments should offer you a way to gain financial leverage with your money. Hefty brokerage fees also work against you by depleting your account and lessening your leverage. In real estate as in stocks, your leverage is your cash investment verses your equity.
Investing in real estate without proper knowledge is also considered speculating. The difference is that financing is more common in real estate and offers a greater opportunity for leverage. Real estate markets also decline more slowly and predictably by comparison to stocks. Velocity of Money Short term swing traders use sophisticated charting methods to decide when to get in and get out of a particular stock and this entry and exit can occur within only hours.
This can afford these traders the advantage of velocity of money allowing them to make money quickly. However, this is still a zero sum game and is not for amateurs because it is just as easy to quickly lose money. Arbitrage Investments such as real estate allow you to create an arbitrage with your money , whereas the stock market cannot do so. Ask your local bank to give you an equity loan against a block of stock or mutual fund.
Yes, you can borrow against your k account. However, there are disadvantages when doing so that work against creating an arbitrage with your money. As you receive payments, and repay your equity loan, your cost of financing are reduced, thereby increasing your arbitrage.
Playing a Positive Sum Game The point of all of the above is that while the stock markets have become the investment option touted by the pundits and the masses for wealth building and retirement, this arena is plagued by risks and high costs. As such, there may be other less speculative options for you to consider.
Take a look at who are the key players pushing stocks and mutual funds and what they stand to gain. The house needs the average consumer to buy in to the game so they can keep profiting from their risk. For a sophisticated stock market investor like Buffett Warren not Jimmy it is possible to make the stock market a positive sum game in some respects by taking some of the speculation out of the equation.
For those who are unable to do this, you might consider staying out of this minefield. Each and every individual investor benefited from this product launch. In other words, it was a win-win situation for everybody involved not a zero sum. In that case, it would be a zero sum game because the company is making money and we are losing money by not getting anything in return. Instead, we are investing our money in exchange for ownership in the company.
The intent being that they will then use that money in order to grow the company resulting in our money shares being worth more. The stock market is still not a zero sum game. As an example, imagine that in you invested in a few mutual funds to create a three fund portfolio. That Additionally speaking, that See how silly that sounds? That is simply not true. There are two types of options contracts: Call Option — Contract giving someone the right to buy a financial security for a specific price within a specified period of time Put Option — Contract giving someone the right to sell a financial security for a specific price within a specified period of time However, options contracts do not represent direct investments into companies.
In other words, there is a clear winner and loser in these types of stock market transactions. Final Thoughts When I first started investing in the stock market, I used to think it was all a zero sum game. With only two options available, there always had to be a clear winner and loser, right?
Not necessarily. The stock market is a complicated web of different players and financial assets.
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