# What's the benefit to society of stock speculation? \[edited title\] **URL:** \ **Category:** Great Debates\ **Created:** [November 4, 2011, 4:06pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864 "2011-11-04T16:06:06Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![yelimS](https://avatars.discourse-cdn.com/v4/letter/y/54ee81/32.png) [@yelimS](https://boards.straightdope.com/u/yelimS)\ **Post date:** [November 4, 2011, 5:03pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/21 "2011-11-04T17:03:18Z")
> [@Omar\_Little](#): > > Traders add value to society, by putting money to work through investments that will ultimately earn a return for the investor, which may the trader themselves or their clients. I don’t think it changes anything that traders are making money on other people’s behalf. That just means a bigger group are making money off everyone else. Where I live, we have a very good pension fund - the traders working for it are certainly benefiting my future self, but as far as I can understand, at the expense of people in other countries who come out on the losing end of their deals. As far as I can see, everyone gains from the efforts of producers (of food, clothing, houses, art, &c), but stock trading seems to me like a zero-sum game, where you can’t make money without someone else losing that same amount. I think that is my refined question - is stock trading a zero-sum game? ---
**Author:** ![yelimS](https://avatars.discourse-cdn.com/v4/letter/y/54ee81/32.png) [@yelimS](https://boards.straightdope.com/u/yelimS)\ **Post date:** [November 4, 2011, 5:04pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/22 "2011-11-04T17:04:48Z")
> [@Bricker](#): > > There’s a thread in the Pit right now that complains about people criticizing science without having the slightest idea what they’re talking about. It spawned a thread from me in GD about what the baseline knowledge for a reasonable adult is. > > It seems to me that the stock market might be another area in which baseline knowledge is considered reasonable, given the comments above. Which, hold your horses, is why I’m asking about this in GD, rather than camping outside my local stock exchange 😉 ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [November 4, 2011, 5:09pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/23 "2011-11-04T17:09:45Z")
> [@yelimS](#): > > As far as I can see, everyone gains from the efforts of producers (of food, clothing, houses, art, &c), but stock trading seems to me like a zero-sum game, where you can’t make money without someone else losing that same amount. > > I think that is my refined question - is stock trading a zero-sum game? Not entirely. Many companies pay dividends to stockholders on a per share basis, so they generate income that way as well. ---
**Author:** ![yelimS](https://avatars.discourse-cdn.com/v4/letter/y/54ee81/32.png) [@yelimS](https://boards.straightdope.com/u/yelimS)\ **Post date:** [November 4, 2011, 5:14pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/24 "2011-11-04T17:14:32Z")
> [@Fear\_Itself](#): > > Not entirely. Many companies pay dividends to stockholders on a per share basis, so they generate income that way as well. I didn’t think of that - but it sounds even worse, IFF speculators don’t add value. **Voyager** : I’m prepared to accept that speculation might be a necessary evil (or indeed that it is entirely beneficial). I’m not really asking what should be done, but rather if there is a problem at all. ---
**Author:** ![CurtC](https://avatars.discourse-cdn.com/v4/letter/c/ce73a5/32.png) [@CurtC](https://boards.straightdope.com/u/CurtC)\ **Post date:** [November 4, 2011, 5:36pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/25 "2011-11-04T17:36:58Z")
> [@yelimS](#): > > I think that is my refined question - is stock trading a zero-sum game? The purchase of the stock from the corporation, in the first place, is an investment. I think you’ll agree on that, right? It benefits the company because that company can now make investments to build new factories or do more research. It benefits the investor because he’s counting on those future increased dividends to pay back his investment, and more. But as you’ve correctly noted, the buying and selling of these shares afterwards is a zero-sum game. Actually, it’s a little less than zero, because there are transaction costs; however those transaction costs are borne by the buyers and sellers so it’s not your concern. Does the fact that these aftermarket trades are zero-sum bother you? The ability to sell my shares later on is necessary, because I wouldn’t invest in a company if I’m not allowed to sell my shares later if I changed my mind. It’s just the way it has to be. The market for buying and selling shares needs to be liquid, else there is disincentive to make those initial investments that fund those corporate investments in the first place. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [November 4, 2011, 5:44pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/26 "2011-11-04T17:44:56Z")
> [@CurtC](#): > > But as you’ve correctly noted, the buying and selling of these shares afterwards is a zero-sum game. Errr… so let’s say you buy one share of the IPO of Groupon for $20. A few months later, I buy it from you for $30. Groupon profits by $20, you profit by $10, and I own an asset that at that moment is worth $30. How is that a zero-sum game? Who, exactly, ended up with a loss of $10 so that you could profit by $10? ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [November 4, 2011, 5:48pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/27 "2011-11-04T17:48:05Z")
Wikipedia’s take on the economic [benefits](http://en.wikipedia.org/wiki/Speculation#The_economic_benefits_of_speculation)and [disadvantages](http://en.wikipedia.org/wiki/Speculation#The_economic_disadvantages_of_speculation)of speculation in general. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [November 4, 2011, 5:49pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/28 "2011-11-04T17:49:57Z")
> [@Ravenman](#): > > Errr… so let’s say you buy one share of the IPO of Groupon for $20. A few months later, I buy it from you for $30. > > Groupon profits by $20, you profit by $10, and I own an asset that at that moment is worth $30. How is that a zero-sum game? Who, exactly, ended up with a loss of $10 so that you could profit by $10? For many purposes, including OP’s, “fixed-sum game” is more meaningful than “zero-sum game.” OP may be asking what portion of price appreciation is typically delivered to brokers and short-term traders. I’m more concerned with instabilities created by hyper-efficient methods like “high speed trading” and unregulated derivatives. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [November 4, 2011, 5:59pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/29 "2011-11-04T17:59:02Z")
> [@septimus](#): > > For many purposes, including OP’s, “fixed-sum game” is more meaningful than “zero-sum game.” Perhaps you could explain the difference. The only references I can find to “fixed-sum” seem to be as a synonym for “zero-sum.” In my example, it seems that wealth is being created, which would most certainly not be a zero-sum (or fixed-sum) game. ---
**Author:** ![CurtC](https://avatars.discourse-cdn.com/v4/letter/c/ce73a5/32.png) [@CurtC](https://boards.straightdope.com/u/CurtC)\ **Post date:** [November 4, 2011, 6:00pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/30 "2011-11-04T18:00:16Z")
> [@Ravenman](#): > > Errr… so let’s say you buy one share of the IPO of Groupon for $20. A few months later, I buy it from you for $30. > > Groupon profits by $20, you profit by $10, and I own an asset that at that moment is worth $30. How is that a zero-sum game? Who, exactly, ended up with a loss of $10 so that you could profit by $10? As I mentioned in my post, I’m here talking specifically about the transaction that goes on between me and you, _at a point in time after my $20 investment with Groupon_ (to use your example). The transaction between you and me is zero-sum. I had a share of Groupon, you had $30. Now you have a share of Groupon and I have $30. That’s zero-sum. The investment with Groupon, with which they can buy more computer equipment and programmers, had already happened. That part is NOT zero-sum; just the transaction between you and me. ---
**Author:** ![shiftless](https://avatars.discourse-cdn.com/v4/letter/s/e9c0ed/32.png) [@shiftless](https://boards.straightdope.com/u/shiftless)\ **Post date:** [November 4, 2011, 6:01pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/31 "2011-11-04T18:01:39Z")
> [@septimus](#): > > I’ll readily agree that OP does not make a good case, but your oft-repeated argument is flawed for a few reasons. For one thing, you ignore that much profit is siphoned off to executives and other employees. If this point needs evidence, just consider the fates of stockholders in, e.g. AIG or Lehman Bros., compared with that of their well-compensated traders. You are mixing executive pay with stockbroker compensation for reasons I don’t understand. If you don’t like the executives siphoning off profits then buy the stock and vote them out. I know that is overly simplistic but just complaining that the rich guys take all the money and I (or we) can’t do anything about it and stocks are at fault is extremely flawed. The market is far from perfect but I can’t see how that would be corrected by getting rid of the brokers. Would the world be a better place if the only way I could get a share of Microsoft was by purchasing it from someone I know personally? How would that stop executives from sphoning profits? The stock holders of AIG and Lehman Bros have themselves to blame. They didn’t squeak about methods when the top guys were hauling in the profits, as long as they got their share. The crying started when the money stopped flowing. I would certainly support something like a tax on trading, just like any other sales tax, to slow down things like day trading. Every other thing in America has a sales tax, why not stock trades? ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [November 4, 2011, 6:05pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/32 "2011-11-04T18:05:09Z")
> [@shiftless](#): > > You are mixing executive pay with stockbroker compensation for reasons I don’t understand. > > If you don’t like the executives siphoning off profits then buy the stock and vote them out. I know that is overly simplistic but just complaining that the rich guys take all the money and I (or we) can’t do anything about it and stocks are at fault is extremely flawed. The market is far from perfect but I can’t see how that would be corrected by getting rid of the brokers. Would the world be a better place if the only way I could get a share of Microsoft was by purchasing it from someone I know personally? How would that stop executives from sphoning profits? > > The stock holders of AIG and Lehman Bros have themselves to blame. They didn’t squeak about methods when the top guys were hauling in the profits, as long as they got their share. The crying started when the money stopped flowing. > > I would certainly support something like a tax on trading, just like any other sales tax, to slow down things like day trading. Every other thing in America has a sales tax, why not stock trades? In what way does day trading harm anyone? edit: Also, there already is a fee on trades. [Cite.](http://www.sec.gov/news/press/2011/2011-55.htm) ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [November 4, 2011, 6:08pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/33 "2011-11-04T18:08:15Z")
> [@yelimS](#): > > … as far as I can understand, at the expense of people in other countries who come out on the losing end of their deals. > As far as I can see, everyone gains from the efforts of producers (of food, clothing, houses, art, &c), but stock trading seems to me like a zero-sum game, where you can’t make money without **someone else losing that same amount**. > > I think that is my refined question - is **stock trading a zero-sum game**? I don’t know where you got this foolish notion. First, people aren’t forced to sell stocks when someone else wants to buy it. The freely are selling something in exchange for cash which they apparently value more than holding the stock. Second, if I buy XYZ at $10.00 hold it for a year and sell it for $10.70, that doesn’t mean that the person buying from me lost $0.70…it means the value of the company appreciated by 7%. But let’s assume that the second year the stock price of XYZ fell to $9.30, and holder #2 decides to sell. Why did the stock fall? Presumably, it was because the earnings potential of XYZ fell, maybe a competing technology was introduced and they are no longer as competitive. Holder #2 has to decide if he believes the value of XYZ is really $9.30 or higher or lower. If he thinks it will appreciate he will hold, if he thinks it will go lower or not change, he will likely sell. It has nothing to do with someone else making or losing money. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [November 4, 2011, 6:11pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/34 "2011-11-04T18:11:57Z")
> [@CurtC](#): > > As I mentioned in my post, I’m here talking specifically about the transaction that goes on between me and you, _at a point in time after my $20 investment with Groupon_ (to use your example). > > The transaction between you and me is zero-sum. I had a share of Groupon, you had $30. Now you have a share of Groupon and I have $30. That’s zero-sum. The investment with Groupon, with which they can buy more computer equipment and programmers, had already happened. That part is NOT zero-sum; just the transaction between you and me. That’s not zero-sum. I have a share of Groupon that I believe will pay dividends or appreciate in value greater than the $30 in cash I used to have. You now have $30 which is $10 more than you originally invested in Groupon. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [November 4, 2011, 6:20pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/35 "2011-11-04T18:20:16Z")
> [@Omar\_Little](#): > > That’s not zero-sum. I have a share of Groupon that I believe will pay dividends or appreciate in value greater than the $30 in cash I used to have. You now have $30 which is $10 more than you originally invested in Groupon. I came up with a very long post that basically said this. Rather than me trying to argue the point, since I am most definitely not a financial expert, I would rely on people who know more than I do: [The Fools.](http://www.fool.com/news/foth/2000/foth000912.htm) > [@](#): > > The zero-sum fallacy > Additionally, given the one-buyer, one-seller nature of a typical brokered transaction, there can be a tendency to assume that stock trading and the market on the whole is nothing more than a zero-sum game. In other words, in every trade one person wins while the other hapless soul loses. The person that ends up on the winning side of the trade more often than the losing side ends up making money in the market. This is another investor misperception. > > In game theory, zero-sum describes a game where one player’s gain is another player’s loss… > > This thought process would work great if the stock market consisted of only fixed elements rather than a hodge-podge of variables, but it does not. In fact, hardly anything in the stock market as a whole is fixed. The size of the pot (or the market’s total capitalization) can get bigger or smaller, depending on the number of investors involved and their changing willingness to commit funds to the market at any point in time. ---
**Author:** ![Anaamika](https://avatars.discourse-cdn.com/v4/letter/a/5f9b8f/32.png) [@Anaamika](https://boards.straightdope.com/u/Anaamika)\ **Post date:** [November 4, 2011, 6:21pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/36 "2011-11-04T18:21:55Z")
> [@Bricker](#): > > There’s a thread in the Pit right now that complains about people criticizing science without having the slightest idea what they’re talking about. It spawned a thread from me in GD about what the baseline knowledge for a reasonable adult is. > > It seems to me that the stock market might be another area in which baseline knowledge is considered reasonable, given the comments above. You’re not wrong. And FTR, I don’t actually think the whole thing is completely valueless…but I posted the above to indicate that I and I think a lot of other average Americans regard the whole thing with a deep sense of distrust, even if we partake in it. You’ll pardon me if I don’t find the frankly biased comments on this particular message board as truly helpful. I don’t mean that in a snarky way, it is just very hard to get truly accurate information when one is always defending or attacking. I’m sure it’s useful to _someone_. In other words, as Lewis Black says, what the stock market ticker tells us is - someone’s getting rich, and _it ain’t us_. ---
**Author:** ![yelimS](https://avatars.discourse-cdn.com/v4/letter/y/54ee81/32.png) [@yelimS](https://boards.straightdope.com/u/yelimS)\ **Post date:** [November 4, 2011, 6:24pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/37 "2011-11-04T18:24:19Z")
**Omar Little** : But if the company appreciates by 7%, how is that thanks to the shareholders (unless they are workers or original investors)? I get that part of the value for workers and investors of having shares is the ability to sell them, and it’s hard to draw a line in the sand here, but at some point, it seems to me that people are making money off a company’s performance (or lack of it, in the case of shorting), without contributing to said performance. That’s what I want to hear justified, even if zero-sum game is the wrong concept to explain what’s going on. Again, I’m **not** asking what’s to be done about this, and my hunch is that some trading is good, but excessive trading isn’t - if that’s the case, it might be hard to regulate away the ‘bad’ trading. ---
**Author:** ![shiftless](https://avatars.discourse-cdn.com/v4/letter/s/e9c0ed/32.png) [@shiftless](https://boards.straightdope.com/u/shiftless)\ **Post date:** [November 4, 2011, 6:28pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/38 "2011-11-04T18:28:08Z")
> [@Trom](#): > > In what way does day trading harm anyone? > > edit: Also, there already is a fee on trades. [Cite.](http://www.sec.gov/news/press/2011/2011-55.htm) You have to ask one of the many people who dislike it so much. I would say it probably leads to some volatility but isn’t a big problem by itself. The link say $19.20 per million (shares traded I assume.) I pay more taxes than that on a good meal out with my wife. ---
**Author:** ![Bricker](https://avatars.discourse-cdn.com/v4/letter/b/977dab/32.png) [@Bricker](https://boards.straightdope.com/u/Bricker)\ **Post date:** [November 4, 2011, 6:29pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/39 "2011-11-04T18:29:49Z")
> [@Anaamika](#): > > You’re not wrong. And FTR, I don’t actually think the whole thing is completely valueless…but I posted the above to indicate that I and I think a lot of other average Americans regard the whole thing with a deep sense of distrust, even if we partake in it. > > You’ll pardon me if I don’t find the frankly biased comments on this particular message board as truly helpful. I don’t mean that in a snarky way, it is just very hard to get truly accurate information when one is always defending or attacking. > > I’m sure it’s useful to _someone_. In other words, as Lewis Black says, what the stock market ticker tells us is - someone’s getting rich, and _it ain’t us_. Here’s the problem – if someone were to say, for example, “I, and a lot of ther average Americans, regard this global warming business with a deep sense of distrust,” you would be set upon by the board equivalent of a pack of wolves, shouted at for your obtuse ignorance and cursed, down to the tenth generation. With some justice, I think – because while we can quibble about some details, the general fact that CO[sub]2[/sub] is a greenhouse gas, greenhouse gases contribute to climate change, and humans have been pumping a great deal of CO[sub]2[/sub] into the atmosphere for the past hundred and fifty years in ever-increasing amounts. Now this – you’re comfortable admitting you don’t really know the details, but still have distrust. There are resources off the boards that can provide good primers – The Fools, linked above, is not bad – but ten minutes’ worth of reading should be sufficient to understand the basics of stocks. We can still quibble over details, but not over the basic fact that there’s no “zero-sum” game involved. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [November 4, 2011, 6:30pm UTC](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864/40 "2011-11-04T18:30:54Z")
> [@yelimS](#): > > It seems to me trading in stock is just making money on other people’s work, and I can’t see the value it adds to society. > I do see the value when it comes to investing in small businesses, or giving workers a share in the company, but when that stock is resold, as far as I can see, the wrong people are making money. Shorting seems suspicious to me - daytrading I can’t understand how is even legal. > So, what is the service to society that wall street brokers are being paid top dollar for? You seem to think that something should exist only if you see the “value to society” in its existence. Why is that? [Previous page](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864.md?page=1) [Next page](https://boards.straightdope.com/t/whats-the-benefit-to-society-of-stock-speculation-edited-title/601864.md?page=3)