Financial myths which are untrue

[chisness]

[ QUOTE ]
I had to explain to my brother the other day that the stock market isnt a zero sum game. Hes a smart guy so I was pretty surprised he assumed that. I think most people do, espeically students, and that is why the image of a coldhearted capitalist exists.

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Can you explain this semi detailed?

[ahnuld]

I explained that it isnt a zero sum gain due to prductivity and technological increases which allow more wealth to be created from the same amount of input, thus increasing wealth at noones expense.

[prohornblower]

[ QUOTE ]
[ QUOTE ]
I had to explain to my brother the other day that the stock market isnt a zero sum game. Hes a smart guy so I was pretty surprised he assumed that. I think most people do, espeically students, and that is why the image of a coldhearted capitalist exists.

[/ QUOTE ]

Can you explain this semi detailed?

[/ QUOTE ]

It's complicated, but basically if you are playing the market you are lending, and should expect a return.

In other words, all the lenders should expect to be winners.

People that aren't playing the market are the losers, really.

I may be wrong but this is the best I personally understand it. [img]/images/graemlins/confused.gif[/img]

EDIT: Another way to look at it is that in a zero-sum game, you need an uncommon skill to come out a winner. In the market, it requires no uncommon skills, just capital. This of course is an oversimplification for clarity.

[ahnuld]

right and lending exists because if we make investments we can produce more wealth than the wealth we spent to invest.

[Jeff W]

I know market isn't a zero sum game, but is it a constant sum game?

[prohornblower]

[ QUOTE ]
I know market isn't a zero sum game, but is it a constant sum game?

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I don't see how it could be. Mother Nature could put a short-term hurting on everyone's quality of life. And when I say short-term, I may mean a term longer than the average life-span.

[Jeff W]

I don't think that randomness in payouts precludes it from being a constant sum game. Poker is a constant sum game(zero sum if there is no rake) even though the payouts are probabilistic. What I mean specifically by constant sum is that the sum of the payoffs for all players is the same for all strategies. Regardless, I don't think the stock market is a constant sum game, but I'm interested if there is an argument to that effect as I'm ignorant of economics.

[Sniper]

[ QUOTE ]
Myth: By forgoing the cup of coffee in the morning, you will save enough for _________ .

I hear this a lot, especially from co-workers. "I started not getting my coffee in the morning because I heard that $3 I save each day will grow ridiculously. Excuse me while I buy my lunch and not change my other habits that are way worse."

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Bach's Automatic Millionaire is pretty well read... the principal behind the statement is not a myth!

[Your Mom]

[ QUOTE ]
[ QUOTE ]
Myth: By forgoing the cup of coffee in the morning, you will save enough for _________ .

I hear this a lot, especially from co-workers. "I started not getting my coffee in the morning because I heard that $3 I save each day will grow ridiculously. Excuse me while I buy my lunch and not change my other habits that are way worse."

[/ QUOTE ]

Bach's Automatic Millionaire is pretty well read... the principal behind the statement is not a myth!

[/ QUOTE ]

It's more about finding money you can save, rather than giving up stuff like a cup of coffee.

[stinkypete]

[ QUOTE ]
I don't think that randomness in payouts precludes it from being a constant sum game. Poker is a constant sum game(zero sum if there is no rake) even though the payouts are probabilistic. What I mean specifically by constant sum is that the sum of the payoffs for all players is the same for all strategies. Regardless, I don't think the stock market is a constant sum game, but I'm interested if there is an argument to that effect as I'm ignorant of economics.

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it's not a constant sum game. innovation doesn't occur at a constant rate.