Market up = good; market down = bad?

[Tyler Durden]

In the last few months, there have been countless times where the newspapers have had large, bold headlines "$37b WIPED OFF MARKET" or something similar, coupled with an image of numerical figures in red.

It really seems to give off the impression that whenever the market goes down, it is a bad thing. But is this necessarily true? If the market goes down, it's bad, and if it goes up, it's good?

I mean, even when the market is going up, although people make money, it will always be at the expense of others, who in turn lose money, right?

And isn't there always a point where the market has gone up 'too' far to be a good thing, meaning everything is just overpriced?

 

[Julia]

I mean, even when the market is going up, although people make money, it will always be at the expense of others, who in turn lose money, right?

What's the basis for this conclusion, tyler?

 

[Tyler Durden]

What's the basis for this conclusion, tyler?

Well if I buy something for $2, then sell it to you for $2.50, I have made 50 cents profit. But this is at your 'expense', because theoretically you could've bought it for $2 but instead you pay $2.50, so you 'lose' 50 cents.

 

[drsmith]

Not if the underlying value of that something has gone up by 50 cents, or more.

 

[cutz]

Well if I buy something for $2, then sell it to you for $2.50, I have made 50 cents profit. But this is at your 'expense', because theoretically you could've bought it for $2 but instead you pay $2.50, so you 'lose' 50 cents.

Not true,

You only lose when you take a haircut.

 

[Julia]

Well if I buy something for $2, then sell it to you for $2.50, I have made 50 cents profit. But this is at your 'expense', because theoretically you could've bought it for $2 but instead you pay $2.50, so you 'lose' 50 cents.

If you buy something for $2, you may well be buying it from someone who paid $1, so in that case the seller is the winner by your reasoning.

It's too simplistic to make the assumptions you have.

People have endless reasons for selling, i.e. they may have achieved their profit target.

Ditto endless reasons for buying, e.g. some fundamentalists who believe they have worked out 'fair value' for a share which could be $3, so if they acquire it from you for $2.50 they feel like winners.

Just a couple of examples.

 

[pixel]

IMHO, it's all relative:

I buy it off you for $2.50 because I reckon it fits into my portfolio at that price. If you thought the same, you would keep it; so you obviously are happy to make 50c profit and move on. Our individual objectives have been met - so far. Good for both of us.

Now let's consider the price of oil:
If I own an oil well, the higher oil price is good - I make more revenue.
If I own a trucking company, I want t he price of oil to fall.

And then there's the seasonal aspect:
A Superfund that is still accumulating may wish for a period of generally low share prices, so they can buy more quality shares for the same amount.
Once it's in distribution phase, it wants the prices to be high, so fewer shares need to be sold to cover the same payout.

See: It's all relative to the individual's past, present, even future requirements.

PS for cutz: Methinks you've fallen for the fallacy "a paper loss isn't really a loss." If that were true, you'd most likely sell all your shares that are doing well, so you turn a paper profit into a real one; yet keep the failures until never-never to avoid making a loss.

 

[Tysonboss1]

Market up = good, market down = also good

 

[medicowallet]

Market up = good, market down = also good

Agree,

The same kind of argument can be around interest rates

imo I prefer for them to be going up, but the media seem to believe that them going down is better.

 

[Ves]

The share market is zero-sum. It is a transfer of wealth. For it to go up more money has be going into the market (ie. causing buying pressure - rising prices) than money that is going out of the market (selling). The opposite is also true, if more money is going out of the market than is going in it will go down.

A better question is - where did the $37 billion that left the share market end up?

 

[tech/a]

The share market is zero-sum. It is a transfer of wealth. For it to go up more money has be going into the market (ie. causing buying pressure - rising prices) than money that is going out of the market (selling). The opposite is also true, if more money is going out of the market than is going in it will go down.

A better question is - where did the $37 billion that left the share market end up?

It's a value.
Like your portfolio rising and falling.
It doesn't go anywhere.

 

[skyQuake]

The share market is zero-sum. It is a transfer of wealth. For it to go up more money has be going into the market (ie. causing buying pressure - rising prices) than money that is going out of the market (selling). The opposite is also true, if more money is going out of the market than is going in it will go down.

A better question is - where did the $37 billion that left the share market end up?

Because its not zero sum.

Futs markets are zero sum.

 

[Julia]

Agree,

The same kind of argument can be around interest rates

imo I prefer for them to be going up, but the media seem to believe that them going down is better.

+1. Such a focus being more peculiar, given far more Australians have money in the bank than have mortgages.

 

[Gringotts Bank]

I view spec stocks as zero sum, in all but a few cases. Blue chips are not zero sum because historically they continue to reward whomever is holding them, through capital appreciation and or dividends.

As usual the media like to make a huge fuss out of market fluctuations. They bore me to tears, rarely having anything useful to say. Although channel 2 evening news has a good finance guy - can't remember his name.

 

[ENP]

Market up = good; market down = bad?

Totally depends on whether you intend to sell shares or buy shares in the near future. It can be good or bad each way.

And also in regards to if you bought a share at $2 from someone who bought it for $1. That is a fairly weird argument in sense. It would be like getting angry and feeling you lose out if you buy new clothes for $20 but feeling like you lose because the retail shop imported it from China for $10. However, if you think the clothes are an absolute bargain, then have you really lost?

 

[Smurf1976]

Because its not zero sum.

Futs markets are zero sum.

Absolutely.

House prices going up is arguably a bad thing from a social and broader economic perspective but that's not really the case with the share market where a rise in valuation is simply a drop in yield.

 

[Smurf1976]

+1. Such a focus being more peculiar, given far more Australians have money in the bank than have mortgages.

There's a fairly simple explanation for that one. The real estate industry likes lower rates, and real estate is a massive source of advertising income for the media, especially newspapers. Don't bite the hand that feeds...