if every stock transaction has a buyer & seller, does that mean 50% of the people will always be losing money?

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I just got into the stocks market. AFAIK every transaction must have someone selling and someone buying, both thinking that they will be making money. How can both be making money?

Does that mean at least half of everyone in the stocks market will have to be losers?

In: 97

29 Answers

Anonymous 0 Comments

Not just stock, all transactions are zero sum.

If someone sells you something and the value goes up, he’ll lose out on money and you get some. If price goes down, you’ll lose money and he’ll dodge a bullet.

Now the definition of gain and loss in accounting can be different from economics. If you buy something for $10 and sell to me for $15. If I sell it to someone else for $20, we both make $5 in accounting but economically, my $5 gain could have been yours if you have kept it and thus you miss/lose $5 by selling it to me

Anonymous 0 Comments

One thing you’re missing is dividends. Many “mature” companies pay part of their profits as dividends every year. So if your shares of XYZ Company represent 1 millionth of all the shares of XYZ Company, and XYZ Company pays $100 million in dividends per year, that means you get $100 per year.

So if you paid $1500 for your shares of XYZ Company, after 15 years you’ll have gotten $1500 back in dividends — but you’ll *still* have your shares of XYZ Company and those shares will *still* be getting $100 a year!

Okay, so where does the “free money” come from? Well, XYZ Company is selling goods or services that customers pay money for, and they generally charge customers more than it costs. If XYZ Company management is good at their jobs, this generates a huge pile of money, that belongs to the company owners — including *you* (since you own one millionth of the company). A dividend is simply the process of XYZ Company sending that pile of money to its owners’ bank accounts, including your tiny one-millionth slice, which usually goes into your account on the stock trading website you use (from where you can send it on to your bank account if you want to spend it on something besides more stocks).

Also, I’ve been talking as if “XYZ dividend = $100 a year forever,” but this isn’t guaranteed. If XYZ does good business then it might start paying you *more* than $100 a year. If it does bad business, it might pay less than $100 in dividends, or stop paying dividends, or go out of business entirely so you can’t even sell the stock anymore. (Theoretically as a shareholder you have a claim to the company’s assets if it goes bankrupt, but in practice you’ll probably get nothing because your claim is last in line — usually all the company’s assets run out before you get anything, because a bankrupt company often has unpaid payroll, unpaid bills, and unpaid loans it got in better times from banks or bondholders.)

For “immature” companies, including a lot of tech companies, they usually hope to either get bought by a bigger company, or spend more than they earn on a strategy to go huge. Successful bets on immature companies can be huge wins, but for every Google or Amazon, there’s lots — 5, 10, maybe 20 — of companies that are epic failures like [pets.com](https://en.wikipedia.org/wiki/Pets.com) or [Blockbuster](https://en.wikipedia.org/wiki/Blockbuster_LLC).

Anonymous 0 Comments

Something like that.

If A sells stocks to B, C, and D for $1 a piece and then the stock rises to $2 a piece, only 25% of the people have lost money. Although if we count A as four separate people, one for each transaction, then you’re basically correct.

Nobody makes or loses money from one transaction though, it is always by at least two transactions. So you cannot say that for any one transaction there is a winner and a loser, it’s more complicated than that.

Fun fact: about 80-90% of individual investors lose money in the stock market overall according to popular estimates.

Anonymous 0 Comments

Aside from what others said about depending on when people buy and sell, if you had one person that bought nine stocks at $20 each, and sold them to nine other people for $15 each, then there would be one person who lost money and nine people who gained money.

Anonymous 0 Comments

Yes, it does mean that.

But only relative to the average growth of the market. If the marked is up by 5% a given year, you can buy an index fund (or just a random variation of stocks) and expect close to 5% return.

For the people who keep trading throughout the year, about half will get returns below 5% and half will get returns above 5%.

So if you are not better than the average (by value, not by the number of traders), you should stay away from manual trading.

Anonymous 0 Comments

Many wrong answers in this thread.

As a means of wealth transfer the market is great.

You sell someone buy, you feel rich. But in aggregate you two lost money on this transaction because frictional costs (fees for banks etc). individual feels wealthier but as an aggregated group you don’t win or lose anything beside the frictional cost.

However, corporations do dividends and stock buy backs and sometimes liquidation. Which is where the wealth is created, this is where the aggregated group gets wealthier.

A market cap of a company should essentially be what that company earns over its lifespan. This is what is hard to figure out and the speculation price gets far off at times and closer at other times.

Anonymous 0 Comments

If the total amount of money and valuable things in the world were constant, the economy and the stock market would be a zero sum game with as many winners as losers.

Fortunately we live in a world where new value is created constantly, whenever someone mines a pound of ore or writes a piece of software, and a monetary system where new money can be easily created to represent that new value. We can expect there will be more value and more money in the future.

Stocks represent ownership in companies, and as a company creates new valuable stuff and sells it, it gets more money to share with stockholders as dividends, and the value of its own stuff increases. Both of these make it more attractive to stock buyers.

This way of thinking seems very remote from the cutthroat world of day trading. This happens on a timescale so fast that the long-term change in value of the company is irrelevant, and it really is a zero-sum game with as many winners as losers. The people who tend to win are the ones who know more about the specific events that trigger the long-term shifts in the value of companies I mentioned earlier. As a newbie amateur, you are not those people, so you are more likely to lose than win.

In long-term investing, almost everybody usually wins. In day trading, the pros more often win and the amateurs mostly lose.

Anonymous 0 Comments

In a sale of stocks, or goods, services, etc you are exchanging values. Dollar amounts are a benchmark to measure value. (as opposed to trading my big sack of wheat for your chunk of meat.)

So in the stock market even if you paid a bazillion for a stock and got bupkiss when you sold it, you got current value. (baring any bizarre manipulation) that’s what it was worth to you, or the next buyer/seller.

Even if you bought a stock as young person and didn’t sell it till really old, and say you bought for $1 and sold for $100, you might have ‘lost’ money, lost value, because relatively inflation has caused the prices of most things to go up even more.

Loss of value happens when perceptions change, reality intrudes…like with NFTs People that spent MILLIONS for ? a digital file (that anybody can find on google images anyway…so???) suddenly find that million dollar investment worth maybe ONE dollar?

consider someone who goes on the PBS Antiques Roadshow and finds out the garage sale painting they bought for a dollar is a lost old master worth 1 million. The person selling it for a dollar got what they perceived the value was at the time.

Anonymous 0 Comments

When you buy stocks, you buy part of a company. Companies have profits, and by holding the stock, you are participating to those profits.

It’s a not a zero sum game. There are other markets like that, Forex, for example. That’s why normal people should stay away of those.

Anonymous 0 Comments

No, imagine that you buy 1 stock @ 1$ per stock at an IPO (the initial stock emission). You then sell it to me for 10$ and make 9$ profit. I then keep the stock until the company decides to liquidate itself (sell off all assets for cash) and hand out all the cash it now has to stockholders, giving me a total of 11$. The stock is now worth 0$ because the company doesnt exist anymore, but it still earned both of us a profit.