equity not sero sum game?

[jagat]

HI!
I am new to equity markets and am a money market trader. Some pf my friends say cash equity market is not a zero sum game. are they true?

 

[Technically Fundamental]

are they true?

Depends... have you trying lying them down and putting a spirit level on them?

 

[Albert Carey]

You can be right, yet wrong

You can be wrong, yet right

 

[Rhody Trader]

Some pf my friends say cash equity market is not a zero sum game. are they true?

Markets where there must be a short for every long, such as futures, are generally considered zero sum (negative sum when factoring in transaction costs) because for one side to win the other must lose. Stocks, however, do not require a short for each long (though obviously there are some shorts matched against longs). They are just assets someone can hold, like owning a painting. As such it isn't the case that someone must lose for you to win.

 

[jagat]

exactly Mr. rohdy trader
now here comes my detailed doubt.
let us say if i buy painting at 100 dollars and u have sold it to me and then price goes 120 dollarsthen u have effectively lost 20 dollars.
Now u can call it a notional loss but then in a world where inflation is also relative(by that i mean u make hue an cry for inflation only when your assets have inflated less compared to infaltion index!!!!),there this notional loss effectively reduces purchasing power by your wrong decision to sell an asset at a low price.

If my argument has any flow then tell me

 

[Rhody Trader]

let us say if i buy painting at 100 dollars and u have sold it to me and then price goes 120 dollarsthen u have effectively lost 20 dollars.

No, I have not lost the $20. I did not gain it, but I did not lose it.

Your arguement is based on the idea of opportunity cost, but it falls flat. Taking aside the fact that zero sum generally is a discussion of direct offsetting gains/losses, the suggestion that the $20 in gains not seen by the seller assumes the seller didn't employ the funds better for her/him in another way. What if I took that $100 and invested in my own business and ended up doubling the value? You can't say I took an opportunity loss on the sale of the painting in that case. At the same time the investment in my business wasn't open to you, so there's no opportunity cost loss from your perspective.

The opportunity cost arguement for zero sum investment assumes everyone has the exact same investment opportunities and the exact same personal financial and other life situations. Clearly, nothing could be further from the truth in reality.