I thought further about my previous position on whether stock trading is a zero-sum game. Now I see a bigger space for it not to be one.
Trading growth stocks
The situation I am thinking about is an argument I found during my google search.
Very simply, one buys a stock at one point in time and sells it to someone else in another.
Let’s take the ‘classical’ position on stocks and consider it merely an investment asset. In this case, we can argue that stock buyers lent money to a company in exchange for a part of its profits. They sell the stocks when it wants to get their money back, say for their retirement.
Here the value comes for the original owner in that the price will be higher when they sell.
This is the same hope the sellers have for the time when they want to realize their investment. That is, when the original buyers sell the stock, the new buyers can get a ‘fair’ price if, in that given time, the stock is still promising some price growth.
This seems more positive-sum for me. However, this view works if we strip away the ‘speculative’ (?), arbitrage-seeking trading aspect of security trading. In this view, stock trading seems to resemble the trade of a good tool one does not need anymore.
There are, of course, a number of issues still unclear for me.
The first is whether ‘speculation’ or ‘arbitrage seeking’ inevitably leads to a zero-sum outcome? Also, can we separate ‘straightforward’ investment from these activities?
The next is about the buying price: when is the price too high/low?
The buyer could always want to ask for a higher price. Aren’t selling a stock at a too high price basically strips away the seller’s possible gains?
On the other hand, one might argue that, if the price reflects the market price, there is less space for unfairness (or at least not directly between the two parties).
Third, there is the question of whether a company can grow infinitely or trading stock is always based on this false promise.
Finally, how do we calculate the outcomes when the ‘gain’, in big part, comes from luck and decisions made years before their realization.