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Equity investing – is it a zero sum game?

We have seen some people view stock market investing as a zero sum game – which means that if someone makes money, correspondingly someone would have lost. There is a sense of scepticism while investing in stocks, as if it is a gambling den.

Let us say two friends play a game of cards and one person makes Rs 100. This would also mean the other person has lost Rs 100. The total of gains and losses adds up to zero. This is an example of a zero sum game.

We have seen some people view stock market investing as a zero sum game – which means that if someone makes money, correspondingly someone would have lost. There is a sense of scepticism while investing in stocks, as if it is a gambling den.

In reality, stock market investing is not a zero-sum game.

Stock markets may look like a zero-sum game in the short term, where one trader gains at the expense of another. On the other hand, over the long term it keeps going up. All participants in the stock market, over a longer period of time, have a proven track record of having made money. For example, the Sensex has moved up from a level of 1048 in 1990, to its current levels of nearly 36,000 – and all investors who stay invested have gained.

Why is it so?

Though in the short term, stock investing may look like speculating, in the long term it is more like a fruit growing tree in your garden. The tree keeps growing and the fruits available from the tree also keeps increasing.

This is because, when you are investing in stocks, you are essentially buying companies which keep growing in line with the economy. As companies grow over time, their profits also increase and the profits they pay to their shareholders also keeps increasing – at an aggregate. Some of the leading companies in India (like TCS, Infosys, HDFC Bank, Hindustan Unilever, ITC, Reliance, etc) have consistently grown over time and shareholders have reaped enormous benefits.

Folks who have invested wisely several years back have benefited from this and are living a comfortable and prosperous retired life.

If you plan well, you can also do the same over the next several years. In case you don’t know which companies are likely to do well, the best option would be to buy into a few proven Mutual Funds, where the fund manager will do the job of selecting the right companies. If you have any doubts, do have a look at the Top 10 holdings of any Mutual Fund.

Do not get dragged into stock market investing as a speculator. Be a long-term investor.

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