Most people think the stock market is a zero sum game because there is a buyer for each seller and seller for each buyer so each cancels the other and everything is equal. Not quite.
There are losers here, both the buyer and the seller because each one paid a commission to buy and a second commission to sell. This eats away at the profit of the winner and adds to the loss of the seller if he sold for less than he paid.
How does buying and selling of a stock effect the company? When you buy GM stock from your broker he is completing a transaction between you, the buyer, and someone else, the seller. The company has nothing to do with the transaction other than change the name of the shareholder on their record books. It has no effect on the corporation's finances. It is merely an expression by an individual; fund or pension plan that they think the company's stock will go up.
There is one time that purchasing a company's stock does affect their bottom line. That is when you purchase a new offering called an Initial Public Offering or IPO. The money that you pay for that stock then goes directly to the company and not to another individual. That cash is used as the company sees fit usually to fund expansion to increase both sales and profits.
Now think for a minute about the people who decided to sell their stock in Phillip Morris because they did not want to own a tobacco company stock. Will this make any difference to the company? Not a twit. The person who bought that stock was interested in only one thing ? will it go up so I can make a profit? That is why socially responsible investing makes no sense at all. It only makes the person feel better and is not a true investment decision.
Let's say you bought a stock at $20/share and sold it at $40. Double your money. Great. The guy that bought it sold it at $60 and that person sold it to someone for $80/share. Everyone is happy. So far. But this last stock buyer now watches the stock head down and he decides to get out at $60. Mr. $60 watches it drop to $20 where it dies and does not recover. Sounds like Lucent doesn't it? The last 2 buyers don't think this is a zero sum game.
Let me add that I think the smartest guy in the bunch was the one who took his loss and sold out at $60. He limited his loss and still has money left to find a better issue. He was smart enough not to "wait for it to go back up so he could get out even". Unfortunately, most people think this way. It may be close to a zero sum game, but you don't want to end up with the zero.
Copyright 2005
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
1-888-345-7870; http://www.mutualfundmagic.com
Every day on CNBC-TV they show a 200-day moving average... Read More
Index Fund Trading can be one of the most profitable...or... Read More
Money management starts with protecting your capital, realizing profits and... Read More
Because there are so many stocks that are NOT paying... Read More
What a great statement!I just heard someone use it in... Read More
Starbucks earnings are up again and so is their stock... Read More
There has been great condemnation recently because China has been... Read More
How many times has this happened to you? You're at... Read More
This is a guide to the different types of mutual... Read More
To become a successful trader you must have some kind... Read More
One of the great "secrets" of successful people is discipline... Read More
I am sure that if you have a brokerage account... Read More
If there is one term over-used when talking about making... Read More
The World Bank claims that some two billion of the... Read More
Four blind men were asked to give a description of... Read More
What does it take to be a stock trader? It... Read More
Everything you invest in has risk so you want to... Read More
As an investor you will want to check out any... Read More
Did you know you can make money (and a lot... Read More
You must take the time once a month to review... Read More
If you are serious about making and keeping money by... Read More
What can I expect to make my first year of... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
With over 6,000 mutual funds available, it may be tempting... Read More
Well, not really. What I mean is I don't mind... Read More
home cleaning services Mundelein ..Mutual funds were moderately successful in creating a presence in... Read More
How often have you come across an advertisement or e-mail... Read More
Every day I hear from the "experts" on CNBC-TV and... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
As an investor you will want to check out any... Read More
Exchange Traded Funds (ETFs) are a group of passive index... Read More
We all know the expression, "My country, right or wrong",... Read More
If you are going to be a winner in the... Read More
Right now there doesn't seem to be any "gold fever".... Read More
Recently I watched my favorite football team lose a vital... Read More
Have you ever thought of investing? Do you have a... Read More
Disclaimer: Please note that I do not necessarily purchase, own,... Read More
There are formulas for just about everything, but it has... Read More
What account size do I need?How much money can I... Read More
We all know that emotions control every decision that an... Read More
The World Bank claims that some two billion of the... Read More
As GuruFocus updates the stock buys and sells of gurus,... Read More
Ever jumped out of an airplane? It's OK if you... Read More
I read a comment by a forum member on another... Read More
Most people think the stock market is a zero sum... Read More
Before they go over the cliff to their destruction these... Read More
Every day I hear someone on CNBC proclaim that "this... Read More
Sometimes the best way of lowering exposure to risk is... Read More
The big bad bear is stirring again. So far he... Read More
Every publicly traded company is required by the SEC(Securities and... Read More
Stocks & Mutual Fund |