The stock market as a whole, is not a zero sum game because... money is added to the return of investors via stock dividends
although you mention "stock dividends" (a/k/a stock splits), it appears you are really talking about cash dividends. w/r/t stock splits, as you know they merely slice a given pie into smaller pieces and add nothing (zero sum). because you presumably know this, i believe you are not talking about stock dividends, but cash dividends.
w/r/t cash dividends: actually, money is not "added" to the "sum" or wealth or return or whatever you want to call it via cash dividends. when a stock goes ex-dividend, ceteris paribus its ex-dividend price is equal to the pre-ex-dividend price plus the distributed dividend. iirc this is treated as a decline in Shareholder's Equity on the balance sheet. so, stock dividends simply move part of shareholder's equity from the company's pocket (where the shareholder has a pro-rata ownership), to the shareholder's pocket, in pro-rata fashion. in other words, dividends are also zero sum.
of course, in an accounting sense based on today's conventions, to figure total returns one must factor in cash dividends in addition to capital gains (or losses). but that is simply a quirk of the capital gain-centric outlook of investors which now (temporarily) prevails. after another decade or so or poor returns, investors will come to distrust capital gains (and stocks, and CEOs), and will require a more dividend-centric market in order to be lured in.
until 1958, US stock dividend yields exceeded the yield on the 10yr UST. this was considered an immutable truth of the market, and when the dividend yield fell below the 10yr yield it was considered "temporary". that temporary state of affairs has lasted fifty years. i doubt it will last another fifty. i believe in the future people will look at the entire market the way they now do energy trusts, i.e., look at the yield, and the presumed security of the yield.
i do agree with your general thesis, though: stocks are not a zero-sum game in the long run. unlike a poker table, where the cash in pot (or whatever they call it) can change hands but not grow or shrink (except as punters add or take away money), in the stock market, the pot itself can grow or shrink as company wealth grows or shrinks over time (following the growth or shrinkage of the overall economy).
if the economy and corporate wealth grow, the "sum", a/k/a Bogle's "fundamental return" will grow (absent a change in P/E, a/k/a Bogle's "speculative return"). if the economy and corporate wealth shrink, so will the "sum".
another factor to consider: just as P/E determines the stock price for a given E, the corporate profits as a share of GDP determine the E. this has been pointed out by Buffett, ContraryInvestor, inter alia many times. Buffett notes that we are very much on the high end of CP/GDP. given that we are about to have a Democratic landslide in the wake of a financial crisis and historic bailout of "fat cats" (as perceived by Main Street), one of the safer 5-10yr bets imo is that CG/GDP will fall.
hence E will fall.
and, like as not, P/E will fall.
if these hunches turn out to be true, the "non-zero-sum game" which we are all playing will be one of shrinkage, not growth, for the "foreseeable" future. |
