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
If you are serious about making and keeping money by... Read More
It has fallen upon the consumer to make our economy... Read More
We are already in it, but you can't see it.... Read More
One of the things people are always asking me is... Read More
Has your broker been calling you recently with the "great... Read More
Is really not as important as to how you invest... Read More
Are you one of those many people who dread reading... Read More
All stock trading and investing methods must deal with the... Read More
You'd have had to be living on a desert island... Read More
I often play a little game with myself when I... Read More
The Surgeon General of the United States says that smoking... Read More
For years investors have been taught to look into the... Read More
With over 6,000 mutual funds available, it may be tempting... Read More
Most stock market traders have a favorite technical indicator.The one... Read More
It is finally catching up with them. The brokerage companies... Read More
If you have not back tested your trading system, you... Read More
It seems that every day I turn on the TV... Read More
Being wrong is OK, but let's not carry it to... Read More
Jack and Jill went up the hill to fetch a... Read More
Never lose money in the stock market again. Yeah, I... Read More
What does it mean to short a stock?This means that... Read More
Caught in a whirlpool and being sucked under. No life... Read More
The demand for world oil is increasing while world reserves... Read More
How is it possible that trash Companies are posting less... Read More
Who are the successful investors?There are those who follow the... Read More
cleaning lady near Lincolnshire ..What are you thinking when it comes to your no... Read More
Have you seen all those big full page ads for... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
Are you one of those many people who dread reading... Read More
You remember the story about the frog that was put... Read More
It takes a total mental commitment to the task. It... Read More
You probably know the story of Sherlock Holmes and the... Read More
If you are serious about making and keeping money by... Read More
For weeks, no, months we have been bombarded with nothing... Read More
One of the basic laws of physics states that a... Read More
Are you paying any attention to your retirement savings? Do... Read More
"There is nothing more frightful than ignorance in action!" Johann... Read More
There are major differences between trading stocks and trading futures.... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
You read and hear a lot about hedge funds. Unfortunately,... Read More
Buy high and sell low -- It's not a typo.Millions... Read More
An investor can find and research the best stock on... Read More
It is wonderful to be alive in the information age.... Read More
Dollar cost averaging is one of the most popular ideas... Read More
It looks like the market is ready to start up... Read More
No, this is not a symbol for some Latin number.... Read More
Options trading can increase the profits you make when trading... Read More
There are formulas for just about everything, but it has... Read More
Because you don't feel too sure about which stock or... Read More
In my opinion, due to the volatility of stock market... Read More
Stocks & Mutual Fund |