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
Several times each month I am solicited by various market... Read More
Every successful trader has a winning system. There are of... Read More
Intervention. Now don't let that big word scare you. The... Read More
There is a famous cliff on the ocean in Acapulco... Read More
There are red lights, green lights, blue lights and spot... Read More
Outlined below are some of the advantages and disadvantages of... Read More
This is a rather simple strategy with which I am... Read More
When most analysts, financial planners, fund specialists and investors try... Read More
Because there are so many stocks that are NOT paying... Read More
I made my very first investment in the stock market... Read More
Before you buy another car you walk around the lot,... Read More
If you have talked to a stock broker or financial... Read More
There are many important things you need to know to... Read More
It looks like the market is ready to start up... Read More
One of the most believed bits of conventional wisdom from... Read More
Have you bought any mutual funds this year or late... Read More
Economists know more about how the fragments of society work... Read More
A common problem I often see when working with living... 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
Sometime in the third quarter of 1997, someone told me... Read More
Most advisors will tell you they can beat the market.... Read More
Just about now everyone is confused as to which way... Read More
If you're like many investors who squander those small dividend... Read More
Dollar cost averaging is one of the most popular ideas... Read More
pet-friendly home cleaners Mundelein ..Last time we looked at the real performance of the... Read More
When you become interested in a stock or mutual fund... Read More
For some "long term" would mean holding a stock position... Read More
As an investor you will want to check out any... Read More
Analyzing growth stocks is an important focus for any investor.... Read More
Trading is a fascinating activity.There are so many layers to... Read More
THERE'S SOMETHING TO BE SAID FOR standing firm in the... Read More
If you are going to be a winner in the... Read More
You probably know the story of Sherlock Holmes and the... Read More
Exchange Traded Funds (ETFs) are a group of passive index... Read More
This is the continuing story of our two imaginary traders,... Read More
Every successful trader has a winning system. There are of... Read More
With the internet such a huge part of our daily... Read More
Just about everything you have been told about Social Security... Read More
So you're started trading, you bought some positions with your... Read More
Every day I see in the financial section of newspapers... Read More
∙ Make every investment in the stock market a long-term... Read More
Checked your 401K lately? Going back to about a year... Read More
Are you one of those many people who dread reading... Read More
If you want one.And I don't recommend any broker with... Read More
There is so much involved in developing peak performance, that... Read More
If you're a normal human being, your need to feel... Read More
Several times each month I am solicited by various market... Read More
In 1960 an engineer working for a watch company in... Read More
A colleague of mine just returned from a scuba diving... Read More
Stocks & Mutual Fund |