posted on Sep, 23 2005 @ 02:05 PM
Stock market and social security
1. Winner's gain is from loser's.
A farmer planted a seed. He sold the fruit The famer created a wealth.
A worker produced a car. He sold the car. He creates a wealth.
Investor A bought one hundred shares at 1.00/share. The company got one hundred dollars to pay rent, wage and material. Then the stock market rose to
peak. Investor A sold the share at 1.10/share to investor B. A got 110 dollars. He made a 10% profit. But was that 10 dollars created? No. it was B's
loss. When B bought the stock from A, he became a potential loser. What he bought was only a piece of paper. He couldn't cash the stock with the
company which issued it. What B can do is hoping some one else to take over the potential loss.
Situation 1. If the stock is Enron, then when it went bankruptcy, B's stock worth nothing. Here Company got 100 dollars. A got 10 dollars. B is the
loser. He lost 110 dollars. Winners' money is from loser's. It's evidenct.
Situation 2. If the stock is HP, then in trough, the share price may fall to 0.90/share. B sold it to C. B lost 20 dollars. C paid 90 dollars for 100
shares. C sold the stock in peak 2 at 1.20/share to D. Now D becomes a potential loser. If nobody has the will to buy his paper, then the stock worth
zero. Now let's see, company got 100 dollars. A sold stock at 1.10/share. he made 10 dollars. B bought at 1.10/share, sold at 0.90/share. B lost 20
dollars. C bought at 0.90/share and sold at 1.20/share. C won 30 dollars. 10(A) + 30(C) + 100 (company) = 20(B loss) + 120 (D's potential loss)
The eqation: Winner's gain(profit) + Capital gain (Company issue the stock) = Losers' loss (loss) + Potential loss (Amount paid by the latest stock
You can see there is no wealth created. How much winner got is how much loser and potential loser lost. And it doesn't include administration fee.
(it's about 2 trillion in 10 years period, Re: San Jose Mercury News, 12/17/04) So when Bush say you may get better income in stock market, there
must be some people bear the loss for the winner's gain. Whom do you think will be the loser and winner?
(I omit the dividend here. it's similar to interest paid by bank.)