Zero Sum
Let's start with the easy one - zero sum game.
If you have a "friendly" round of poker or mahjong with your friends or colleagues, that's zero sum.
That means the money the winners won has to come from the losers. It's my pocket to your pocket that sort of thing.
Only feeble brained players believe in this friendly poker advice, "Careful boys, let's play well tonight so we can ALL go home as winners!"
Win-Win (Non zero sum)
Don't laugh. In real life, there are many vested parties who use that poker joke on their non suspecting customers.
Often used in the field of properties and equities.
A buys a stock at $1, sells it to B at $2, and B sells to C at $3, and so on...
Everyone is a winner! Win-win!
Another spin is that you are not a "speculator". By owning a fractal share of a company you've invested in, you are a "business owner" (woo....) who profits along with the future growth of the company. Win-win!
Tell that to "fractal business owners" in NOL who bought at $5, and those long term thinking "investors" who bought Creative at $20 plus....
Mind you, NOL and Creative were once upon a time component stocks in the STI. They are not penny stocks or S-chips. In fact, you can call them "smurf chips".
But that was then... Now is now. How's win-win working out for you?
In Singapore, I've not lived through a 50% property bear market... Thank goodness! If you interested what it feels like, try talking to friends or colleagues in US or Japan.
A plain vanilla 20% property correction we have gone through a few times. Just consult your parents, older siblings, etc.
It's no longer fun when C has to sell to D at $2.50 :(
Tip: Always ask, "Will you make me whole again if things do not pan out as you've describe?"
Have fun watching the snake squirm and slither under a rock and reach out for that long list of disclaimers in small print. Well, so much for strong conviction advice...
Negative sum
Some of you may be wondering why I did not put futures, CFDs, spot forex or options into zero sum?
Because they are not.
There's exchange fees, GST, brokerage commissions, bid-offer spreads, financing costs, etc.
Just look at the financing charges for shorts and longs - the broker even makes on this financing spread!
When you win, you win less than what the person who took the opposite side of the trade has lost.
It's a bit like protection money. Win must pay; lose also must pay!
Seeing things for what they are
It's never about being cynical or skeptical. That's too dismal a perspective.
It's more about our ability to see through the smoke and mirrors and look out for our own interests.
That newsletter from the exchange, that ad from a broker, that blog post from a vested interest who uses social media as a means of reaching out - would they be doing what they do if they don't benefit from this negative sum game?
Nothing is for free. OK, maybe with the exception of well meaning advice from bleeding hearts!
Negative sum is not scary. Its just a business cost that I'll have to manage - like all other expenses in life.
By the way, while you are at it, you might want to add in your broadband subscription, depreciation on computers, investing/trading newsletters, seminars/courses paid for, etc.
Unless you want someone to poke you on your SMART goals but have fuzzy accounting on costs and expenses...
Singapore Man of Leisure (welcome to my blog; just google it!)
