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
Every stock market investor faces one primal enemy. An enemy... Read More
Both the stock market and oil prices rallied recently, which... Read More
It has been said that low cost or even free... Read More
Are you attracted to the idea of being in control... Read More
There is nothing more exciting than finding an undervalued stock... Read More
What is leverage?Here is a definition of leverage from an... Read More
The World Bank claims that some two billion of the... Read More
This is a guide to the different types of mutual... Read More
(1) CHK stock price $16.74, NAV $32.5CHK is my favorite... Read More
How many times have you said to yourself, "I'd like... Read More
Any online investor / trader seeks an excellent off or... Read More
I know there are a lot of you out there... Read More
For the last few weeks we have seen the stock... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
That sounds like good advice doesn't it? Don't lose all... Read More
Every day I hear someone on CNBC proclaim that "this... Read More
Last time we looked at the real performance of the... Read More
Most people think the stock market is a zero sum... Read More
For years I have been saying you must have a... Read More
Money management starts with protecting your capital, realizing profits and... Read More
When will the stock market stop going down and start... Read More
The Winter Games for the Olympics are coming up soon... Read More
If you have talked to a stock broker or financial... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
For the last 12 years we have seen the Japanese... Read More
spotless home service Buffalo Grove ..In 1960 an engineer working for a watch company in... Read More
Checked your 401K lately? Going back to about a year... Read More
So you're started trading, you bought some positions with your... Read More
Are you attracted to the idea of being in control... Read More
Caught in a whirlpool and being sucked under. No life... Read More
If you go to Haiti or other places in the... Read More
It's about time someone spoke the truth concerning outsourcing. The... Read More
What the heck am I talking about?It is often said... Read More
IT'S REMINISCENT OF THE OLD children's tale about an old... Read More
Because there are so many stocks that are NOT paying... Read More
Most stock market traders have a favorite technical indicator.The one... Read More
The fight continues to rage among traders who use technical... Read More
Even if you don't own any of their stock or... Read More
If you are serious about making and keeping money by... Read More
Look back over the years and try to remember how... Read More
There is so much involved in developing peak performance, that... Read More
If there is one term over-used when talking about making... Read More
I have a 2-car garage. There are nice shelves on... Read More
As a novice trader, you'll often feel the need to... Read More
The Winter Games for the Olympics are coming up soon... Read More
If you've ever flipped on the television to CNN Financial... Read More
Have you bought any mutual funds this year or late... Read More
All of the talking heads have been telling us that... Read More
1. Do not spread your money too thin.My friend has... Read More
Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More
Stocks & Mutual Fund |