Expert: Paul Henneman - 10/21/2008

Question
Is investment in the stock market a zero-sum game, i.e. when some people lose money in the market, others will gain the equal amount somewhere somehow?  

Answer
Thank you Eddie for your question.
   My answer would be that the stock market is only sort of a zero sum game. In the short term, yes. In the long term, no.
   In the short term traders and short term investors are constantly trying to buy and sell stocks for a profit. So there is a strong component that if someone makes a good profit, someone else somewhere, either directly or indirectly, is losing money.
   However, this does not tell the whole story. In general the overall economies of the US as well as the rest of the world are growing. There are short periods of time, perhaps months or a few years in length, where recessions interrupt that growth. But over the long term, economies grow. And the companies that make up those economies grow. That means that for public companies, their stock price can increase, creating profits without a direct result of someone else losing money. So there is a strong component of general growth in the overall economy, and thereby for publicly traded companies. Some companies grow more than others, some companies fail, so it is still difficult to invest long term to find that growth. Lack of research or knowledge can get any investor in trouble, but the longer the time horizon of the investment, generally the less the risk and more likely to see profits.

I hope that this helps! Please do not hesitate to follow up with me if I can be of any additional service.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com