Portfolio Game

Is the sharemarket a zero sum game or loss making game?

e.g if u lose 10%in value i.e 100 became 90, u need to earn back 10, ie 11% to gain back to 100. conversely, if u earn 10%, ie 100 to 110, and u lose back 10% of 110) , u are back to 99 and not 100. Does that mean we are more likely to lose than win?

Public Comments

1. No, it does not and it is not a zero sum game either. A zero sum game is a game in which for a winner there is also a looser. That is not necessarily the case with the sharemarket. A buys a stock for 10, it goes up to 15 and he sells making 5 a share. The person he sells it to buys at 15. The stock goes up to 50 and he makes 35 a share. They both made money. Obviously, that scenario works only on companies that are growing their earnings. Some companies are shrinking their earnings. In such a case, selling short is the better strategy.
2. Neither. It is a positive sum game. If the company increases in value, then the shareholder is better off with no one worse off. It is true that not all stocks go up and some players lose, but I'm talking about average over the long term the total value of traded companies has increased as the economy has grown.