Skip to main content

A Minus-Sum Game

Image
By
A Minus-Sum Game :

Winners in a zero-sum game make as much as losers lose. If you and I bet $20 on
the direction of the next 100-point move in the Dow, one of us will collect $20 and
the other will lose $20. A single bet has a component of luck, but the more knowledgeable
person will keep winning more often than losing over a period of time.
People buy the industry’s propaganda about trading being a zero-sum game, take
the bait, and open accounts. They don’t realize that trading is a minus-sum game.

Winners receive less than what losers lose because the industry drains money from
the markets.
For example, roulette in a casino is a minus-sum game because the casino sweeps
away between three and six percent of every bet. This makes roulette unwinnable in
the long run. You and I can get into in a minus-sum game if we make the same $20
bet on the next 100-point move in the Dow through brokers. When we settle, the
loser will be out $23, and the winner will collect only $17, while two brokers will
smile on their way to the bank.
Commissions and slippage are to traders what death and taxes are to all of us.
They take some fun out of life and ultimately bring it to an end. A trader must support
his broker and the machinery of exchanges before he collects a dime. Being
simply “better than average” is not good enough. You have to be head and shoulders
above the crowd to win a minus-sum game.

Comments

  1. Phani KumarJuly 28, 2020 at 3:06 PM


    Hey, thanks for the information. your posts are informative and useful.
    Hercules Hoists Ltd

    ReplyDelete

Post a Comment

Popular posts from this blog

Commissions

By
Commissions: Commissions have become much smaller in the past two decades.Twenty years ago, there were still brokers who charged one-way commissions of between half a percent and one percent of trade value. Buying a thousand shares of GE at $20 a share, with a total value of $20,000, would have set you back $100 to $200 on the way in—and again on the way out. Fortunately for traders, commission rates have plummeted. The extortionate rates haven’t completely disappeared. While preparing this book for publication, I received an e-mail from a client in Greece with a small ac- count whose broker—a major European bank—charged him a $40 minimum on any trade. I told him of my broker whose minimum for a hundred shares is only $1. Without proper care, even seemingly small numbers can raise a tall barrier to success. Look at a fairly active trader with a $20,000 account, doing one roundtrip trade per day, four days a week. Paying $10 one way, by the end of the week he’ll spend $80 in commi...
18 comments
Read more

SIPs - A habit to inculcate

By
The one conscious habit that everyone needs to adopt is the habit of SIPs. Saving something every month and investing it systematically in mutual funds is a habit that most of us should inculcate. It's not that hard and the long-term benefits are fabulous. Cultivating the SIP habit frees you from having to decide when and how much to invest. SIPs are in this sense the best way to invest in equity funds. Systematic investments average out the cost of your unit purchases, they don't put you at the risk of catching a market peak, and they earn you the benefit of compounding. And probably the most important benefit, from a non-technical perspective, is that SIPs force you to save and invest that definite amount periodically. Money saved is money earned, we know that. And in the case of SIPs, money invested is money that works to earn more money for you. Now, isn't that a habit you could get used to?
13 comments
Read more
By
Building Your Go to Market Strategy When you introduce a product or service to a new market, there’s always going to be some risk. Over 30,000 new products are introduced every year, but 95% of new products fail. You don’t want to spend time and resources on a go to market plan that’s going to fall flat. A comprehensive go to market strategy acts as a roadmap, helping you research your market, position your brand, and unveil your new product or service. But before we look at how to build a go to market strategy framework, just what is “go to market” and how do you build a strategy around it? What Is a Go to Market Strategy? So, what does “go to market” mean? A go to market strategy (sometimes called a GTM strategy) is a plan of action that lays out how your company will reach customers in a new target market and gain a competitive advantage over other players in that market. It can also refer to how you’ll reach customers in an existing market with a new produ...
1 comment
Read more