How is the stock market NOT zero-sum?

[DcifrThs]

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The TRADING of stocks is zero-sum, but we're missing the point here.

The true value of the market grows over time because corporations profit. Trading is just the process of splitting up those profits.

[/ QUOTE ]But this will happen regardless of how the game is played.

In other words, this would imply the stock market IS a fixed sum game, but the sum is fixed to some value unknown in the present.

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Perhaps its ok to say that TRADING stocks is a zero-sum activity surrounding the non-zero-sum activity of HOLDING stocks?

[/ QUOTE ]Okay, I've admitted that holding stocks is not really zero sum.

I haven't heard any evidence that it is not a CONSTANT or fixed sum game, however, which is the same general idea as a zero sum game: that all gains come from the expense of another. (I know this is theoretically not true, as even small value trades supposdly affect market prices of stocks, but this is so minute it can be disregarded for most investors.)

Does anyone have any stronger evidence that the stock market is not a constant sum game?

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from wikipedia:

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. Zero-sum can be thought of more generally as constant sum where the benefits and losses to all players sum to the same value

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Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counterparties are acting rationally, any commercial exchange is a non-zero-sum activity, because each party must consider the goods s/he is receiving as being at least fractionally more valuable to him/her than the goods he/she is delivering. Economic exchanges must benefit both parties enough above the zero-sum such that each party can overcome his or her transaction costs.


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a few examples in terms of the stock market:

- an increase in productivity (all else equal) drives down current and future input costs, increases margins, andincreases the value of stocks whose productivity increased.

- a new product is released which benefits those who want to buy it and thus provides a revenue stream for the company (think google, MSFT, kraft, miller etc.)

- a new market opens up where new wealth is tapped for the benefit fo companies and shareholders (growth of emerging markets etc.)

that can be extended many ways and basically the overall value of the stock market (i.e. one measure in terms of market capitalization...even market cap divided by the total # of stocks to take into account more issuers than previously) is virtually constantly increasing. i don't think buying and holding is anywhere remotely close to a zero or constant sum game. not by a mile.

Barron