Friday, May 29, 2009

Stock Market as Non-Zero Sum System

Our economy is considered a market economy. We are not the only ones to have a market economy. Most people to not seem to know that during most of its life China had a market economy. However, it never produced capitalism. In a zero-sum system, there is a winner for every loser. In a non-zero sum system, everyone can win, or conversely, everyone can lose.

If you take a look at our stock market, you will see that it is a non-zero sum system. When the total value of the stock go up, everyone can potentially win and when the total value of the stocks go down, everyone can potentially lose. This is not really, what happens, as there are relative winners and losers when the stock market goes up or goes down.

We, in English speaking countries, tend to think of capitalism as being Anglo-Saxon. However, it really started in Venice, moved to Holland, before hitting England. Niall Ferguson has recently written a couple of financial books that are really worth while reading on the subject of money and finance. He is a favorite author of mine. His recent books are “The Ascent of Money” and “The Cash Nexus”.

I know that a lot of people are concerned about our stock market at this present time. However, what is happening is not a lot different that has happened in the past. I have been investing since the 70’s and market has taken a lot of twists and turns. To get a better perspective, you could look at stock market charts. My favorite is at MSN Money. Here you can get historical charts of the US and Canadian markets. To get the TSX, use the code “$CA:OSPTX and the get the Dow Jones use code $DJI. When looking at charts such as these, it is a good idea to use the Chart Scale of Log Base 2 or Log Base 10.

If you look at these charts, you will see that that there were considerable problems in the 1970’s and from mid 1980’s to mid 1990’s. For Canadian’s the TSX chart only goes back to 1979. However, if you look at the chart you will see that the TSX hit around 4,000 in 1987 and did not finally leave this level until 1995. Looking at such charts can put what the market is going through in perspective.

I still plan to buy and hold stocks and I mark progress, not only in the value of my portfolio, but also in the amount of dividends I get. Though out this recent market, I my dividend income has steadily increased. This is exactly what has happened before in difficult markets.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets.

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