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Non-Tech : Meet Gene, a NASDAQ Market Maker
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To: Tai Jin who wrote (951)9/3/2000 4:00:18 PM
From: Londo  Read Replies (1) of 1426
 
The market is a zero sum game.

When a trade is made, money changes hands. The "buyer" does not have his cash destroyed. It simply goes to who sold the stock.

The fact that equity values have increased by 11.8% or 12% or whatever as an aggregate is attributable to the fact that money is injected into the market with corporate earnings.

In theory, when somebody buys a 50 cent pack of gum from Wrigleys, that money indirectly gets injected into the stock market... the 10 cents of earnings that Wrigleys makes selling that pack of gum goes to guess where? The shareholder.

Dividends, of course, are subtracted from this zero sum game.

Before somebody argues that if GDP goes up only 3% on a historical average (I have no idea what the real number is), why does the stock market increase 12% a year? Well, because of the simple fact that worse companies can only lose 100% of their money. Good companies can increase their money by more than 100%. Since bad companies eventually get delisted from the market average, that tends to skew the average up.

Amazon could go up to $10,000 per share, and it would still be a zero sum game: somebody has to pay for the stock. And somebody receives $10,000 where they can take elsewhere.
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