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Is Investing a Zero-Sum Game? - Views on News from Equitymaster
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The Equitymaster Research Digest

Is Investing a Zero-Sum Game?
Aug 19, 2016

  • Investing and poker
  • You need a stock picker's edge
  • Likely GST tax rates

While admitting that the question may seem silly, a reader recently asked us if stocks are a zero-sum game. In other words, are one participant's gains balanced by the losses of other participants?

No, dear reader, the question isn't silly at all. In fact, it really got us thinking...

I don't know what it is about stocks that gives a lot of people the impression they're a zero-sum game. But stocks function just like real estate, bonds, gold or any other asset class: You lay down money now to get more money back in the future.

The Source of Confusion

Maybe it has to do with the wild swings of stock prices. With stocks, one moment you feel like a hero. The next, you're taking a beating in a back alley. It does feel a bit like being in a casino.

Then there's the challenge of convincing a stock investor that what he is investing in isn't just a piece of paper. It is in fact a stake in real life-and-blood businesses with tangible assets.

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