Oops, wrong link in my above comment (and no way to edit it). Try this: http://www.chrismartenson.com/blog/exponential-money-finite-world/29744. I just discovered this guy today, and am finding him quite compelling.

Curmudgeon nailed it, as long as there is growth in the equity indices, the stock market is not a zero sum gain. On the other hand, all derivatives are definitely a zero sum game since two parties are always taking opposite sides of the bet and the instrument is not perpetual.

“Unless you can do it full time, I think most people will do better with buy and hold on a diversified portfolio, combined with a little bit of rotation in emphasis on specific sectors, and regular rebalancing.”

Unless it doesn’t work. Like in the US-market for the last 10 years or in Japan for even 20 years. But maybe buy-and-hold investors have still done better as the ones who tried to time the market and ended up buying high and selling low.

However, who is willing to wait for 30 – 40 years to prove the buy-and-hold strategy to be the right choice over the long term? I am not.

rc

As for the long-term. How much does the US-economy grow by producing by much a year on average over the long-term? 3 – 4%? So, if you imagine all members of society as one single share-holder of the whole economy and the increase in the value of all goods in the economy is expressed as increase in the value of the shares, then the value of the shares should increase by about 3 – 4% a year on average. That’s it. This should also be the average increase in the stock market over the long-term purely due to economic growth.

Keep in mind this is all theoretical and does not necessarily reflect the ‘real’ world:

Society at large not only reflects the winners but also the losers. The stock market, in general, does as well. That being said it is possible to pick a company that produces goods over time that is able to outperform the economy via innovation and productivity enhancements for the short to medium term. I don’t think the time span would be much beyond say 10 – 20 years because at some point, as some say, the company would become the economy due to compound growth

So as far as the company can innovate and improve economic conditions within an economy, finding ways to benefit from the good and avoiding the bad, I think they can grow above the average. Especially if you were to catch the best of growth in your early years and then just matched economic growth later. They can also move outside of a single economy and become a multinational. Thus benefiting and possibly revolutionizing other economies before the restraints of size catch up to them.

I’m not saying it is probable to find a company like that but it certainly is possible

Thus, subtracting this small long-term average gain due to economic growth from the big swings the markets show around this average not just over years, but also over decades, everything else is a Zero-sum gain.

Well, championships are won at the margins.

“.. everything else is a Zero-sum game.”

rc

Your counter-example contradicts the statement that no one can make gains in the markets even when betting on the right company. I didn’t make such a statement. Your example only works, if you assume the successful company doesn’t dilute its shares to a degree that it will be the only real winner over the long-term at the end, anyway. Maybe the point you wanted to make with your counter-example is that there is long term growth of the economy and this should be reflected in the increase of the total value of all companies in the stock market. I don’t fully disagree with you here, but I was talking about trading as a tool to make gains, not about long-term investing. As for the long-term. How much does the US-economy grow by producing by much a year on average over the long-term? 3 – 4%? So, if you imagine all members of society as one single share-holder of the whole economy and the increase in the value of all goods in the economy is expressed as increase in the value of the shares, then the value of the shares should increase by about 3 – 4% a year on average. That’s it. This should also be the average increase in the stock market over the long-term purely due to economic growth. Thus, the best approach to achieve this may be to just hold shares of all companies in the economy and wait for 30 to 50 years or so (hoping there won’t be structural break-down of society during this period). But who wants to do that? Who participates in the markets as trader or investor for the promise of this small gain that only would probably realize over a very long time? Thus, subtracting this small long-term average gain due to economic growth from the big swings the markets show around this average not just over years, but also over decades, everything else is a Zero-sum gain.

rc

Ciao,

Econolicious

no worries~ given ‘context’, from what I understood of dude’s article, he was saying, merely, that: ~” some programs are better than others, and, when reaching the, recognizable, limits of the, current, program–uninstall, and update with ‘better’ warez’..”

I hear ya, from the CompSci/Prog POV, though, somehow, I think that wasn’t were dude was coming from..IOW, while he may be think, wistfully, about the passing of Heathkit, I doubt he has digikey.com ‘bookmarked’ in his Opera browser..