When I am buy stock at a lower price point than it was trading a 1 day or week, month or year later, does it mean that somebody during that same time frame is losing the difference?
In: Economics
Not necessarily. When you buy or sell, you are buying or selling at the fair market value at that point in time. Stocks can go up or down over time and no one can predict the future, so even if you have a gain, that next buyer could also have a gain if the stock continues to climb.
Overall your thought process is correct. However the answer is “not necessary”. For example, someone might have bought it a year ago even lower than you are buying now, so they actually are profitable.
Not necessarily.
The *total value* of the stock market goes up over time – this is a reflection of the fact that the economy is not zero-sum.
However, the shorter the window between a purchase and sale, the closer it will be to zero-sum.
Basically, if you make money in the stock market from long-term investment, it’s probably mostly from general value growth. If you make money from rapid same-day trading, it’s probably almost entirely from other people losing money.
Not necessarily, no. For example, in the simplest scenario you could have a stock which just keeps going up.
New company launches stock at $10. Someone buys it, then sells it to you later on at $20: they’ve made $10 on each share they had.
Then you sell your shares at $30 to someone else. You’ve also made $10 per share.
A drop doesn’t necessarily mean losing money, either. Supposing I had also bought some of those shares at $10 when they launched. I watch the price go up: $20, $30 – but I don’t sell, because I think it’s going to go further. I was wrong, though: it slips back down to $25.
Now, I haven’t actually *lost* money: I’m still up $15 from where I started – I’m just not up by as much as I was at another point.
The person you sold to at $30 might get scared now, and sell at $25 in case it drops further – in which case, yes, they have lost $5 – or they might hold their nerve and wait, and it goes back up to $30 or $35, and nobody has lost anything.
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No.
Stocks aren’t like options, or default swaps, or many other products where the payout structure is deliberately set up to mean that person who incorrectly predicts the future has to pay the person who is correct.
Stocks make money in two ways.
First, they pay dividends. If a company has excess profit from its operations, they can simply distribute it to all of the shareholders. As an owner of the stock you get a check in the mail, and the company didn’t “lose” anything. They earned money (from operating successfully), and then doled it out.
The second is if the stock goes up in value. There’s a lot of reasons why the price of a stock goes up and down. But the most fundamental one is related to the prior point: the price of a stock goes up if someone expects that owning a stock will be more valuable in the future, and therefore desires it more. A stock becomes more valuable in the future if the dividend it pays increases.
So, say you buy a share in a company for $10, and it pays a 1% annual dividend. Then the company announcea that they’re increasing their dividend to 2% a year. Someone else may very much desire to buy a stock that pays a 2% dividend, and offers you $11. You may decide you’d rather have $11 cash in hand than this stock, so you sell.
You’ve made $1 profit on buying and selling the stock. And now someone else has a stock worth $11. Neither of you lost anything.
Buying stock is (well, should be) an investment in a company. Your investment helps the company do better. Raising wages, buying equipment to expand, etc. You bought 10 shares at $20 each. Now they’re worth $25. When you sell at the new price, no one lost money, per se. If those shares go up in value, the new investor will make money, too. But it’s a risk. If the company does poorly and the price of stock goes down you would have to wait and hope the share price goes up or sell yours at a loss.
That is the ideal. But there are tricks that can be done to game the system. There are ways to make money even when share prices go down. I personally don’t understand that aspect.
I had to reread your question. The answer is a solid no. If you purchased stock then you purchased it from someone and they no longer have a tie to that stock. The fact that the price has gone up means that other people were willing to buy that stock and other people who used to own that stock were willing to sell it for the higher price.
Now, the people that sold the stock to you are certainly missing out on the extra gains they would have received if they had just continued to hold it, but they are not losing money while the stock goes up. You lose money if you buy stock, the price goes down, and then you decide to sell it.
Lots of comments about the gains from the value of the stock going up and then selling it. But people aren’t just buying stock because they think other people will value it at a higher price later. There’s also actual earnings to be had that do not coming from selling the stock to another person.
Companies earn profit, and if they don’t need that money for reinvestment (such as to expand the business), they will pass that excess profit on to the stockholders by paying dividends or doing stock buybacks. So that’s money earned without taking it from another trader.
That’s mainly what dictates the price people are willing to pay for a stock. They are looking at the ability of the company to pay out more profits in the future, so that’s why a growing company that expects higher profits in the future will go up in stock price.
Not in a million years
I buy it for $1 and sell it for $2. Who then sells it for $3 and so on. Everyone is getting rich!!
The stock market is not zero-sum.
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