Where does the money you make from CFDs come from?

[brty]

if TLS goes to 0 tomorrow. Net in < net out.

??

Even if it did go to 0 tomorrow, the money in can only equal the money out. The sum purchase price of all the shares ever bought can only equal the sum total of all the shares ever sold.

For existing punters today, the money out of the whole market in the future can only equal what goes into it, therefore for today's holders of stocks, they rely on new money coming into the market to continue to rise so that they can take more out in the future.

Because of the leeches in the system. err sorry, brokers, then when Joe buys a share for $10 he actually pays $10.01 and when Fred sells his share for $10 he only gets $9.99, therefore it is a negative sum game (with the exception of dividends).
It would be interesting to see if the total of all dividends paid were more or less than the total of all brokerage and fees paid. I assume that when you add tax paid by the winners in the game, it would definitely be a losing game in the long run for all participants as a whole.

brty

 

[skyQuake]

??

Even if it did go to 0 tomorrow, the money in can only equal the money out. The sum purchase price of all the shares ever bought can only equal the sum total of all the shares ever sold.

For existing punters today, the money out of the whole market in the future can only equal what goes into it, therefore for today's holders of stocks, they rely on new money coming into the market to continue to rise so that they can take more out in the future.

Because of the leeches in the system. err sorry, brokers, then when Joe buys a share for $10 he actually pays $10.01 and when Fred sells his share for $10 he only gets $9.99, therefore it is a negative sum game (with the exception of dividends).
It would be interesting to see if the total of all dividends paid were more or less than the total of all brokerage and fees paid.

brty

Gotcha, I was using neg/positive sum in terms of Asset valuation rather than flows. ie for every winner there does not have to be a loser.

I assume that when you add tax paid by the winners in the game, it would definitely be a losing game in the long run for all participants as a whole.

taking an extreme example, If a stock lists at 1c and runs to $1 in a straight line, that would make everyone winners

 

[Tysonboss1]

Tyson,

the All Ords as a whole is 4.6%. This is less than current bank interest.




brty

Cash is not inflation hedged, where as the underlying assets of the companies are.

So bank interest of 4.6% is actually 1.6% after inflation has taken it's toll on the underlying asset being the cash itself that makes up the deposit.

Plus most companies don't pay out 100% of earnings, they retain some to make further investments in growth.

 

[brty]

SQ,

taking an extreme example, If a stock lists at 1c and runs to $1 in a straight line, that would make everyone winners

How do the owners of the stock extract their money in this case?? They sell to someone. New money. It does not change the fact that the money out can only equal the money in. Those particular shareholders have done well.

Tyson

Cash is not inflation hedged, where as the underlying assets of the companies are.

So bank interest of 4.6% is actually 1.6% after inflation has taken it's toll on the underlying asset being the cash itself that makes up the deposit.

Plus most companies don't pay out 100% of earnings, they retain some to make further investments in growth.

I don't deny any of this, yet it does not change the fact that you as a holder of stock can only extract your money by selling the shares, apart from dividends. How else do you extract money?? The same arguments you hold for interest apply to dividends.

brty

 

[Tysonboss1]

Tyson



I don't deny any of this, yet it does not change the fact that you as a holder of stock can only extract your money by selling the shares, apart from dividends. How else do you extract money?? The same arguments you hold for interest apply to dividends.

brty

You extract money through dividends and if you have held long enough for the company to grow then you should also make a profit when you sell to some one else.

The inflation example I gave does not hold true for dividends over time, Because as the currency is devalued over time the dividends and/or the value of the underlying assets will rise.

for example, after 25 years inflation would have halved the buying power of $1000 cash, So if you had kept $1000 in a cash invesment both your $1000 investment and your $46 interest have lost buying power.

However if you owned an asset worth $1000 and inflation halved the buying power of cash over 25 years, when you come to sell that asset you should be able to sell it for $2000 and over that time prices for the products the assets produces would have gone up so the asset would be generating a return of $86pa vs the interst on the cash of $46

 

[brty]

Tyson,

for example, after 25 years inflation

Ahh, the long term. Yes, if you can find a company that has stable growing dividends over the long term you will do well. If you go back 25 years and tried to invest in that type of company you would have to buy quite a few companies to guarantee that some survived the test of time. The history of the stockmarket is one of historic performances of the survivors. Once you count the cost of long term failures, the performance is not that great as many would have you believe.

Of course you have still assumed that there is more new money in the future to pay you for your shares, you still need that new money to pay for your exit. The Japanese have waited for 20 years for there market to pick up, but it is not happening.

Because we have a superannuation guarantee in this country, then provided employment continues to rise and inflation keeps happening, then you can be assured there will be a market in 25 years time for you to cash out in, provided of course you get the choices of companies correct.

brty