Trading is not a Zero-Sum Game

Every Tuesday Chuck releases a new Trader Tip video on YouTube. This week we will discuss: Do you use stops? What is the context in which you use them? Are you willing to step back and evaluate your beliefs about stops and see if there's a better way?

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!

What's really interesting in trading is a lot of people have the belief that markets are a zero-sum game.

For every dollar made, there is $1 lost. For every person who gets rich, there's somebody who loses everything. Someone wins, and someone loses. It makes trading and investing almost seem predatory, and this is a common problem that I run into, with traders that I work with.

I'm blessed to work with a lot of traders that are very mission driven, purpose driven, and what you'll see with a lot of them is the idea "Well, if I do really well trading, I can donate to my favorite charities, or I can spend time serving or helping out or things like this." So there's like a disconnect. It's like I make money. And then I use this money over here to do something that kind of justifies that I made this money, that I'm good doing good things with it. When I have this discussion with traders, it often just radically shifts their perspective, their beliefs about what benefit trading actually has. So I want to clear up the misconception that trading is a zero-sum game, because this is most often not the case at all.

A really powerful idea, a powerful belief for you to internalize is that money is actually just made up. Money is not real. I'm really passionate about this topic, because I live in Chicago, and I'm in Chicago right now, and there's certain neighborhoods even around here where it's very fluent. There's places you can go in Chicago and you could be carjacked, you could be shot, mugged, robbed all for 20 bucks, 25 bucks, a cell phone, a jacket, shoes. People literally lose their life over these material things. So there's a belief that money is real and you better have it, you better protect it, you better fight for it, you better take it from someone else, so you can have some. This is an incredibly limiting belief and it breaks my heart when I see stories like this where somebody gets carjacked, and they get shot over their car. Are you kidding me?

We need to understand that money is actually just made up, and not only is it made up, but the products that people exchange money for are just ideas. All of this shit is just made up. I'm going to share an example with you. So first of all, if we believe that money is a zero-sum game, then for every dollar made, there has to be $1 loss, right? It's zero-sum. Well, let's look at Facebook. Facebook was invented in 2004 by Mark Zuckerberg in his dorm room. Very little money put into it upfront. Now Facebook was IPOed in May of 2012 with a valuation of $104 billion. This 104 billion was just made up. The question I have for you is people had a market value of 104 billion who lost 104 billion? Tell me who lost that 104 billion? Tell me. You can't. The reason you can't just because nobody lost 104 billion. So how can it be zero-sum if somebody made 104 billion, where's the where's the loss? It's not there. That's because Facebook was just an idea that was made up, and it became monetized and people exchanged money in return for the earning power of Facebook shares.

One of the things I heard from Robert Kiyosaki that always stuck with me was that creating a publicly traded company was actually legal counterfeiting. So what's interesting about that is what he basically said is like, if you counterfeit money, what do you do? You take paper, you copy the prints of the currency, and you create paper money, supposedly fake. You take this paper money and you go out and you exchange it for goods and services, and so you get goods and services and they get fake money. This is cheating. This is counterfeiting. Supposedly. Well, Kiyosaki says, Well, let's look at a company, we started a company, we have an idea, we start a company, we go out and what do we do, we print stock certificates on paper, and we take the stock certificates and we exchange them

for money. Just made it up, just printed them, legal counterfeit. Now, what's really different in this example is that when we counterfeit, there's nothing of value that backs it up, but when we have a company, that company is valued, but what I want you to understand is the value is just made up. It's not real. When people give you tangible assets for this thing, that is just an idea. So creating a company and taking it public, and exchanging it for something tangible is a great example of how it's just made up.

Another example is corn, eat corn every day. Well to create corn, it takes seed and it takes land. The seed is cheap, and the land can be rented. corn stock grows out of the ground, and people will pay you money for that corn stock. So see costs for an acre of corn is roughly $180 per acre. An acre of corn yields roughly now $8 per bushel, and there's 200 bushels per acre, that's $1,600 per acre. So think about it, you exchange your money for corn. Well, this nobody lost $1,600 per acre on the corn. Nobody lost that money. It's just made up. It literally grows out of the ground. Remember when you grew up and you were told Money doesn't grow on trees? Yeah, does. It grows in trees. All this stuff just grows out of the ground. It's just made up.

Now let's go over one more example. Bitcoin, cryptocurrencies in general. Bitcoin was created by a pseudonym, of Satoshi Nakamoto. So we just made it up. Look at NFTs, just make it up, but attach something to it. All these cryptocurrencies are made up, people are willing to exchange value for them.

Money is just an idea. Value is just an idea.

If we actually get really into it, you know what underpins the value? You. Human life, human ingenuity and human thought and production, that's what creates value, not the tangible thing itself. Trading is not a zero-sum game. Every product has intrinsic value. That intrinsic value is just made up. Now, that intrinsic value can go up or go down and around the intrinsic value guess, some people will make money, some people will lose money. But the intrinsic value itself moves, and that is the real value that was created by some party. So it's actually incredibly liberating, powerful to understand that trading is not a zero-sum game. Multiple parties can win. Value can be just made up and created in a way that benefits all parties. Some of you have never thought of this, this way before. I hope that I really got you thinking because this is a powerful frame on multiple levels.

If you liked this, make sure you tune in next Tuesday. Every Tuesday, I do a Trader Tip Tuesday. Always make it worth your time. I wanted you thinking about trading in new ways. that'll help take your performance to an elite level. Thanks for tuning in. God bless. I'll see you next week. Bye.

~Chuck Whitman