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At the beginning of the year I was given the opportunity to review a book called The Losing Game: Why You Can’t Beat Wall Street. Basically it looks at how the stock market is a zero-sum game or, in other words, for every winner there is a loser. It is definitely a great read, but I wanted to dive into that zero-sum argument.
People that know me are aware that I like to make things as simple as possible. Furthermore, if you have followed this site, then you know I definitely like to make stock trading as simple as possible. I seriously believe the biggest key to being successful in the stock market is the mental aspect, and the power of thinking can really affect the results of your trades more so than any charts or numbers can.
The stock market is just that, a marketplace. If we think about it in its most basic terms, the market is more about a battle of ideas than actually buying and selling companies. Obviously the buyer feels the stock is going to go higher, while the seller believes the stock should go lower. While eventually you could “theoratically” call somebody the loser, the point is that we don’t really know what the outcome was for each individual.
Example: What if Stock X had been on the rise and our buyer feels the stock should continue to go higher, while the seller already experienced that run and looking to capture profits. Even if the stock continues to go up, the seller wasn’t necessarily a loser. He or she just had differing opinions of what risk they wanted to take.
Now I’m well aware that I probably haven’t blown your mind away with anything amazing, but there is a point I’m trying to get at…
Once again, the initial theory behind a marketplace is to create a central place for buyers and sellers to find each other. If you want to sell a car, then you probably want to go to a place where a lot of people are looking to buy a car. If there were no sellers or no buyers, then we have no market and the operation is pointless.
Reader Says: That’s great! So what???
As social media begins to evolve and more and more of us average folks continue to have some sort of voice, more and more people are starting to quickly dismiss other people’s trades.
Example: If Bob thinks Stock X is about to bust out and Suzy doesn’t. Suzy may try everything in her power of words to say the trade is useless do this instead.
It seems nowadays that everybody thinks their method is the ultimate way to trade stocks and all other methods are completely pointless; however, the problem with this is that people like Suzy are not understanding what a market is.
What’s one person garbage is another man’s treasure. If we are all to think the same way about each stock, then how could there be a seller for every buyer? How could anybody make any money? There just wouldn’t be a market.
If you haven’t gotten it by now, the point I am trying to make is to not fuss over what others are doing. I’m all for stock recommendations, and if that stock doesn’t seem to look right to you, then great. Depending on the person, I’m sure they won’t mind your 2 cents, but leave it at that. If the market is indeed a zero-sum game, then feel confident you will be on the winning side, and that other guy can be on the losing.