Stock options are very different from stock shares. I assume you’re talking about shares.
Stock shares represent part ownership of a company. The fact that you’re likely to be a minority owner and have no control over the company does not change the fact that you are still legally entitled to a share of the company’s value. If the company’s value rises, the value of your share rises as well.
it is possible that a transaction is positive sum
If you’re talking about personal subjective utility, every voluntary transaction is positive-sum. But that’s irrelevant for the purpose of this discussion since here we are talking dollars and not utilons.
therefore the stock market is approximately zero-sum
You still don’t understand. Public companies (generally) create value. This value accrues to the owners of the companies who are the holders of stock shares. In the aggregate, stock holders own all the public companies. If the public companies produced value, say, this year, the value of the companies themselves increased. This means that the worth of the stock in the stock market has increased—even if no transactions have taken place. That is why stock market is not a zero-sum game.
Stock options are very different from stock shares. I assume you’re talking about shares.
Yes, sorry about the imprecision.
If the public companies produced value, say, this year, the value of the companies themselves increased. This means that the worth of the stock in the stock market has increased—even if no transactions have taken place. That is why stock market is not a zero-sum game.
I didn’t claim that owning stock shares produces no value. I claimed that most trades involving stocks (those which neither increase nor decrease the amount of stocks) are zero-sum w.r.t. monetary value.
Consider Alice and Bob who have the same utility function w.r.t. money and the same discounting strategy. Alice sells a share to Bob at price X. Alice is betting that the total discounted utility from the dividends gained by owning the share indefinitely is less than the immediate utility of owning X, while Bob is betting that it is greater than that. Clearly they can’t be both right. The gain of one is the loss of the other.
Stock options are very different from stock shares. I assume you’re talking about shares.
Stock shares represent part ownership of a company. The fact that you’re likely to be a minority owner and have no control over the company does not change the fact that you are still legally entitled to a share of the company’s value. If the company’s value rises, the value of your share rises as well.
If you’re talking about personal subjective utility, every voluntary transaction is positive-sum. But that’s irrelevant for the purpose of this discussion since here we are talking dollars and not utilons.
You still don’t understand. Public companies (generally) create value. This value accrues to the owners of the companies who are the holders of stock shares. In the aggregate, stock holders own all the public companies. If the public companies produced value, say, this year, the value of the companies themselves increased. This means that the worth of the stock in the stock market has increased—even if no transactions have taken place. That is why stock market is not a zero-sum game.
Yes, sorry about the imprecision.
I didn’t claim that owning stock shares produces no value. I claimed that most trades involving stocks (those which neither increase nor decrease the amount of stocks) are zero-sum w.r.t. monetary value.
Consider Alice and Bob who have the same utility function w.r.t. money and the same discounting strategy. Alice sells a share to Bob at price X. Alice is betting that the total discounted utility from the dividends gained by owning the share indefinitely is less than the immediate utility of owning X, while Bob is betting that it is greater than that. Clearly they can’t be both right. The gain of one is the loss of the other.