Do I make money in the stock market from other people losing money?
"Do I make money in the stock market from other people losing money? Not normally.* The stock market as a whole, on average, increases in value over time. So if we make the claim that the market is a zero-sum game, and you only make money if other people lose money, that idea is not sustainable. There aren't that many people that would keep investing in something only to continue to lose money to the ""winners."" The stock market, and the companies inside it, grow in value as the economy grows. And the economy grows as workers add value with their work.  Here's an analogy: I can buy a tree seed for very little and plant it in the ground. If I do nothing more, it probably won't grow, and it will be worth nothing. However, by taking the time to water it, fertilize it, weed it, prune it, and harvest it, I can sell the produce for much more than I purchased that seed for. No one lost money when I sell it; I increased the value by adding my effort.  If I sell that tree to a sawmill, they can cut the tree into usable lumber, and sell that lumber at a profit. They added their efforts and increased the value.  A carpenter can increase the value even further by making something useful (a door, for example). A retail store can make that door more useful by transporting it to a location with a buyer, and a builder can make it even more useful by installing it on a house.  No one lost any money in any of these transactions. They bought something valuable, and made it more valuable by adding their effort.  Companies in the stock market grow in value the same way. A company will grow in value as its employees produce things. An investor provides capital that the company uses to be able to produce things**, and as the company grows, it increases in value. As the population increases and more workers and customers are born, and as more useful things are invented, the economy will continue to grow as a whole.  * Certainly, it is possible, even common, to profit from someone else's loss.  People lose money in the stock market all the time.  But it doesn't have to be this way.  The stock market goes up, on average, over the long term, and so long term investors can continue to make money in the market even without profiting from others' failures. ** An investor that purchases a share from another investor does not directly provide capital to the company.  However, this second investor is rewarding the first investor who did provide capital to the company.  This is the reason that the first investor purchased in the first place; without the second investor, the first would have had no reason to invest and provide the capital.  Relating it to our tree analogy: Did the builder who installed the door help out the tree farmer?  After all, the tree farmer already sold the tree to the sawmill and doesn't care what happens to it after that.  However, if the builder had not needed a door, the sawmill would have had no reason to buy the tree." There's really not a simple yes/no answer.  It depends on whether you're doing short term trading or long term investing.  In the short term, it's not much different from sports betting (and would be almost an exact match if the bettors also got a percentage of the team's ticket sales), In the long term, though, your profit mostly comes from the growth of the company.  As a company - Apple, say, or Tesla - increases sales of iPhones or electric cars, it either pays out some of the income as dividends, or invests them in growing the company, so it becomes more valuable.  If you bought shares cheaply way back when, you profit from this increase when you sell them.  The person buying it doesn't lose, as s/he buys at today's market value in anticipation of continued growth.  Of course there's a risk that the value will go down in the future instead of up. Of course, there are also psychological factors, say when people buy Apple or Tesla because they're popular, instead of at a rational valuation.  Or when people start panic-selling, as in the '08 crash.  So then their loss is your gain - assuming you didn't panic, of course :-) "Because I feel the answers given do not wholely represent the answer you are expecting, I'd like to re-iterate but include more information. When you own stock in a company, you OWN some of that company. When that company makes profit, you usually receive a dividend of those profits. If you owned 1% of the company stock, you (should) recieve 1% of the profits. If your company is doing well, someone might ask to buy your stock. The price of that stock is (supposed) to be worth a value representative of the expected yield or how much of a dividend you'd be getting.  The ""worth"" of that, is what you're betting on when you buy the stock, if you buy $100 worth of coca cola stock and they paid $10 as dividend, you'd be pretty happy with a 10% growth in your wealth. Especially if the banks are only playing 3%. So maybe some other guy sees your 10% increase and thinks, heck.. 10% is better than 3%, if I buy your stocks, even as much as 6% more than they are worth ($106) I'm still going to be better off by that extra 1% than I would be if I left it in the bank.. so he offers you $106.. and you think.. awesome.. I can sell my $100 of cola shares now, make a $6 profit and buy $100 worth of some other share I think will pay a good dividend. Then cola publicises their profits, and they only made 2% profit, that guy that bought your shares for $106, only got a dividend of $2 (since their 'worth' is still $100, and effectively he lost $4 as a result. He bet on a better than 10% profit, and lost out when it didn't hit that. Now, (IMHO) while the stock market was supposed to be about buying shares, and getting dividends, people (brokers) discovered that you could make far more money buying and selling shares for 'perceived value' rather than waiting for dividends to show actual value, especially if you were not the one doing the buying and selling (and risk), but instead making a 0.4% cut off the difference between each purchase (broker fees). So, TL;DR,  Many people have lost money in the market to those who made money from them. But only the traders and gamblers." The stock market is no different in this respect to anything that's bought or sold. The price of a stock like many other things reflects what the seller is prepared to sell it at and what the buyer is prepared to offer for it. If those things match then a transaction can take place. The seller loses money but gains stocks they feel represent equivalent value, the reverse happens for the buyer. Take buying a house for example, did the buyer lose money when they bought a house, sure they did but they gained a house. The seller gained money but lost a house. New money is created in the sense that companies can and do make profits, those profits, together with the expected profits from future years increase the value that is put on the company. If we take something simple like a mining company then its value represents a lot of things: and numerous other lesser things too. The value of shares in the mining company will reflect all of these things. It likely rises and falls in line with the price of the raw materials it mines and those change based on the overall supply and demand for those raw materials. Stocks do have an inherent value, they are ownership of a part of a company. You own part of the asset value, profits and losses made by that company. Betting on things is different in that you've no ownership of the thing you bet on, you're only dependent on the outcome of the bet. Just because your slice of pie gets bigger doesn't necessarily mean someone else's becomes smaller. In a lot of cases it's the entire pie that gets bigger. Why is the pie bigger? More investors (savers turn investors; foreign investments, etc.), more money printed (QE anyone?), Market sentiment changes (stock is priced by perceptions) And it can certainly get smaller. "The answer is partly and sometimes, but you cannot know when or how. Most clearly, you do not take somebody else's money if you buy shares in a start-up company. You are putting your money at risk in exchange for a share in the rewards. Later, if the company thrives, you can sell your shares for whatever somebody else will pay for your current share in the thriving company's earnings. Or, you lose your money, when the company fails. (Much of it has then ended up in the company's employees' pockets, much of the rest with the government as taxes that the company paid).  If the stockmarket did not exist, people would be far less willing to put their money into a new company, because selling shares would be far harder. This in turn would mean that fewer new things were tried out, and less progress would be made. Communists insist that central state planning would make better decisions than random people linked by a market. I suggest that the historical record proves otherwise. Historically, limited liability companies came first, then dividing them up into larger numbers of ""bearer"" shares, and finally creating markets where such shares were traded.  On the other hand if you trade in the short or medium term, you are betting that your opinion that XYZ shares are undervalued against other investors who think otherwise. But there again, you may be buying from a person who has some other reason for selling. Maybe he just needs some cash for a new car or his child's marriage, and will buy back into XYZ once he has earned some more money.  You can't tell who you are buying from, and the seller can only tell if his decision to sell was good with the benefit of a good few years of hindsight.  I bought shares hand over fist immediately after the Brexit vote. I was putting my money where my vote went, and I've now made a decent profit. I don't feel that I harmed the people who sold out in expectation of the UK economy cratering. They got the peace of mind of cash (which they might then reinvest in Euro stocks or gold or whatever). Time will tell whether my selling out of these purchases more recently was a good decision (short term, not my best, but a profit is a profit ...)  I never trade using borrowed money and I'm not sure whether city institutions should be allowed to do so (or more reasonably, to what extent this should be allowed). In a certain size and shortness of holding time, they cease to contribute to an orderly market and become a destabilizing force. This showed up in the financial crisis when certain banks were ""too big to fail"" and had to be bailed out at the taxpayer's expense. ""Heads we win, tails you lose"", rather than trading with us small guys as equals! Likewise it's hard to see any justification for high-frequency trading, where stocks are held for mere milliseconds, and the speed of light between the trader's and the market's computers is significant." Day traders see a dip, buy stocks, then sell them 4 mins later when the value climbed to a small peak. What value is created? Is the company better off from that trade? The stocks were already outside of company hands, so the trade doesn't affect them at all. You've just received money from others for no contribution to society. A common scenario is a younger business having a great idea but not enough capital funds to actually get the business going. So, investors buy shares which they can sell later on at a higher value. The investor gets value from the shares increasing over time, but the business also gets value of receiving money to build the business. "In gambling, the house also takes a cut, so the total money in the game is shrinking by 2-10 percent.  So if you gain $100, it's because other people lost $105, and you do this for dozens of plays, so it stacks up.  The market owns companies who are trying to create economic value - take nothing and make it something. They usually succeed, and this adds to the total pot and makes all players richer regardless of trades.   Gambling is transactional, there's a ""pull"" or a ""roll"" or a ""hand"", and when it's over you must do new transactions to continue playing.   Investing parks your money indefinitely, you can be 30 years in a stock and that's one transaction. And given the long time, virtually all your gains will be new economic value created, at no one else's expense, i.e. Nobody loses.  Now it's possible to trade in and out of stocks very rapidly, causing them  to be transactional like gambling: the extreme example is day-trading.  When you're not in a stock long enough for the company to create any value (paid in dividends or the market appreciating the value), then yes, for someone to gain, someone else must lose. And the house takes a cut (e.g. Etrade's $10 trading fee in and out).  In that case both players are trying to win, and one just had better info on average.   Another case is when the market drops. For instance right after Brexit I dumped half my domestic stocks and bought Euro index funds. I gambled Euro stocks would rebound better than US stocks would continue to perform.  Obviously, others were counterbetting that American stocks will still grow more than Euro will rebound.  Who won that gamble?  Certainly we will all do better long-term, but some of us will do better-er. And that's what it's all about." "There is one other factor that I haven't seen mentioned here.  It's easy to assume that if you buy a stock, then someone else (another stock owner) must have sold it to you.  This is not true however, because there are people called ""market makers"" whose basic job is to always be available to buy shares from those who wish to sell, and sell shares to those who wish to buy.  They could be selling you shares they just bought from someone else, but they also could simply be issuing shares from the company itself, that have never been bought before. This is a super oversimplified explanation, but hopefully it illustrates my point." Do I make money in the stock market from other people losing money? Sometimes. If the market goes down, and someone sells -- on a panic, perhaps, or nervousness -- at a loss, if you have extra cash then you can buy that stock on the hope/expectation that its value will rise.
"*(""Fee-only"" meaning the only money they make is the fee your folks pay directly; no kickbacks from financial products they're selling.) The answer to this is: for God's sake, leave it alone!  I commend you on wanting to help your family avoid more losses. You are right, that having most of one's retirement in one stock or sector is just silly. And again yes, if they're retired, they probably need some bonds.  But here's the thing, if they follow your advise and it doesn't work out, it will be a SERIOUS strain on your relationship. Of course you'll still be a family and they'll still love you, but emotionally, you are the reason they lost the money, and that will an elephant in between you. This is especially the case since we're talking about a lot of money here (presumably), and retirement money to boot.   You must understand the risk you're taking with your relationships. If you/they lose, at best it'll make things awkward, and you'll feel guilty about their impoverished retirement. At worst it can destroy your relationship with your folks.  What about if you win? Won't you be feted and appreciated by your folks for saving them from themselves? Yes, for a short while. Then life moves on. Everything returns to normal.  But here's the thing. You won't win. You can't. Because even if you're right here, and they win, that means both they and you will be eager for you to do it again. And at some point they'll take a hit based on your advise.    Can I be blunt here? You didn't even know that you can't avoid capital gains taxes by reinvesting stock gains. You don't know enough, and worse, you're not experienced enough. I deduce you're either a college student, or a recent grad. Which means you don't have experience investing your own money. You don't know how the market moves, you just know the theory.  You know who you are? You're me, 20 years ago. And thank God my grandparents ignored my advise. I was right about their utilities stocks back then, too. But I know from what I learned in the years afterwards, investing on my own account, that at some point I would have hurt them. And I would have had a very hard time living with that.  So, tell your folks to go visit a fee-only financial adviser to create a retirement plan.  Perhaps I'm reading into your post, but it seems like you're enthusiastic about investing; stocks, bonds, building wealth, etc. I love that. My advise -- go for it! Pull some money together, and open your own stock account. Do some trading! As much as people grouse about it, the market really is glorious. It's like playing Monopoly, but for keeps. I mean that in the best way possible. It's fun, you can build wealth doing it, and it provides a very useful social purpose.  In the spirit of that, check out these ideas (just for you, not for your folks!), based on ideas in your post:  Good luck." "I'm just trying to visualize the costs of trading. Say I set up an account to trade something (forex, stock, even bitcoin) and I was going to let a random generator determine when I should buy or sell it. If I do this, I would assume I have an equal probability to make a profit or a loss. Your question is what a mathematician would call an ""ill-posed problem.""  It makes it a challenge to answer.  The short answer is ""no.""  We will have to consider three broad cases for types of assets and two time intervals. Let us start with a very short time interval.  The bid-ask spread covers the anticipated cost to the market maker of holding an asset bought in the market equal to the opportunity costs over the half-life of the holding period.  A consequence of this is that you are nearly guaranteed to lose money if your time interval between trades is less than the half-life of the actual portfolio of the market maker.  To use a dice analogy, imagine having to pay a fee per roll before you can gamble.  You can win, but it will be biased toward losing. Now let us go to the extreme opposite time period, which is that you will buy now and sell one minute before you die.  For stocks, you would have received the dividends plus any stocks you sold from mergers.  Conversely, you would have had to pay the dividends on your short sales and received a gain on every short stock that went bankrupt.  Because you have to pay interest on short sales and dividends passed, you will lose money on a net basis to the market maker.  Maybe you are seeing a pattern here.  The phrase ""market maker"" will come up a lot. Now let us look at currencies.  In the long run, if the current fiat money policy regime holds, you will lose a lot of money.  Deflation is not a big deal under a commodity money regime, but it is a problem under fiat money, so central banks avoid it.  So your long currency holdings will depreciate.  Your short would appreciate, except you have to pay interest on them at a rate greater than the rate of inflation to the market maker. Finally, for commodities, no one will allow perpetual holding of short positions in commodities because people want them delivered.  Because insider knowledge is presumed under the commodities trading laws, a random investor would be at a giant disadvantage similar to what a chess player who played randomly would face against a grand master chess player.  There is a very strong information asymmetry in commodity contracts.  There are people who actually do know how much cotton there is in the world, how much is planted in the ground, and what the demand will be and that knowledge is not shared with the world at large.  You would be fleeced. Can I also assume that probabilistically speaking, a trader cannot do   worst than random? Say, if I had to guess the roll of a dice, my   chance of being correct can't be less than 16.667%. A physicist, a con man, a magician and a statistician would tell you that dice rolls and coin tosses are not random.  While we teach ""fair"" coins and ""fair"" dice in introductory college classes to simplify many complex ideas, they also do not exist.  If you want to see a funny version of the dice roll game, watch the 1962 Japanese movie Zatoichi.  It is an action movie, but it begins with a dice game.   Consider adopting a Bayesian perspective on probability as it would be a healthier perspective based on how you are thinking about this problem.  A ""frequency"" approach always assumes the null model is true, which is what you are doing.  Had you tried this will real money, your model would have been falsified, but you still wouldn't know the true model. Yes, you can do much worse than 1/6th of the time.  Even if you are trying to be ""fair,"" you have not accounted for the variance. Extending that logic, then for an inexperienced trader, is it right to   say then that it's equally difficult to purposely make a loss then it   is to purposely make a profit? Because if I can purposely make a loss,   I would purposely just do the opposite of what I'm doing to make a   profit. So in the dice example, if I can somehow lower my chances of   winning below 16.6667%, it means I would simply need to bet on the   other 5 numbers to give myself a better than 83% chance of winning. If the game were ""fair,"" but for things like forex the rules of the game are purposefully changed by the market maker to maximize long-run profitability.  Under US law, forex is not regulated by anything other than common law.  As a result, the market maker can state any price, including prices far from the market, with the intent to make a system used by actors losing systems, such as to trigger margin calls.  The prices quoted by forex dealers in the US move loosely with the global rates, but vary enough that only the dealer should make money systematically.  A fixed strategy would promote loss. You are assuming that only you know the odds and they would let you profit from your 83.33 percentage chance of winning. So then, is the costs of trading from a purely probabilistic point of   view simply the transaction costs? No matter what, my chances cannot   be worse than random and if my trading system has an edge that is   greater than the percentage of the transaction that is transaction   cost, then I am probabilistically likely to make a profit? No, the cost of trading is the opportunity cost of the money.  The transaction costs are explicit costs, but you have ignored the implicit costs of foregone interest and foregone happiness using the money for other things. You will want to be careful here in understanding probability because the distribution of returns for all of these assets lack a first moment and so there cannot be a ""mean return.""  A modal return would be an intellectually more consistent perspective, implying you should use an ""all-or-nothing"" cost function to evaluate your methodology." "This is my two cents (pun intended).  It was too long for a comment, so I tried to make it more of an answer.  I am no expert with investments or Islam: Anything on a server exists 'physically'.  It exists on a hard drive, tape drive, and/or a combination thereof.  It is stored as data, which on a hard drive are small particles that are electrically charged, where each bit is represented by that electric charge.  That data exists physically.  It also depends on your definition of physically.  This data is stored on a hard drive, which I deem physical, though is transferred via electric pulses often via fiber cable.  Don't fall for marketing words like cloud.  Data must be stored somewhere, and is often redundant and backed up. To me, money is just paper with an amount attached to it.  It tells me nothing about its value in a market.  A $1 bill was worth a lot more 3 decades ago (you could buy more goods because it had a higher value) than it is today.  Money is simply an indication of the value of a good you traded at the time you traded.  At a simplistic level, you could accomplish the same thing with a friend, saying ""If you buy lunch today, I'll buy lunch next time"".  There was no exchange in money between me and you, but there was an exchange in the value of the lunch, if that makes sense.  The same thing could have been accomplished by me and you exchanging half the lunch costs in physical money (or credit/debit card or check). Any type of investment can be considered gambling.  Though you do get some sort of proof that the investment exists somewhere  Investments may go up or down in value at any given time.  Perhaps with enough research you can make educated investments, but that just makes it a smaller gamble.  Nothing is guaranteed.  Currency investment is akin to stock market investment, in that it may go up or down in value, in comparison to other currencies; though it doesn't make you an owner of the money's issuer, generally, it's similar.  I find if you keep all your money in U.S. dollars without considering other nations, that's a sort of ignorant way of gambling, you're betting your money will lose value less slowly than if you had it elsewhere or in multiple places. Back on track to your question: [A]m I really buying that currency?  You are trading a currency.  You are giving one currency and exchanging it for another.  I guess you could consider that buying, since you can consider trading currency for a piece of software as buying something. Or is the situation more like playing with the live rates? It depends on your perception of playing with the live rates.  Investments to me are long-term commitments with reputable research attached to it that I intend to keep, through highs and lows, unless something triggers me to change my investment elsewhere.  If by playing you mean risk, as described above, you will have a level of risk.  If by playing you mean not taking it seriously, then do thorough research before investing and don't be trading every few seconds for minor returns, trying to make major returns out of minor returns (my opinion), or doing anything based on a whim. Was that money created out of thin air? I suggest you do more research before starting to trade currency into how markets and trading works.  Simplistically, think of a market as a closed system with other markets, such as UK market, French market, etc.  Each can interact with each other.  The U.S. [or any market] has a set number of dollars in the pool.  $100 for example's sake.  Each $1 has a certain value associated with it.  If for some reason, the country decides to create more paper that is green, says $1, and stamps presidents on them (money), and adds 15 $1 to the pool (making it $115), each one of these dollars' value goes down.  This can also happen with goods.  This, along with the trading of goods between markets, peoples' attachment of value to goods of the market, and peoples' perception of the market, is what fluctates currency trading, in simple terms.  So essentially, no, money is not made out of thin air.  Money is a medium for value  though values are always changing and money is a static amount. You are attempting to trade values and own the medium that has the most value, if that makes sense.  Values of goods are constantly changing. This is a learning process for me as well so I hope this helps answers your questions you seem to have.  As stated above, I'm no expert; I'm actually quite new to this, so I probably missed a few things here and there." "The implication is market irrationality is stronger than market rationality. Aka nothing makes sense when TSLA climbs to $400 or when CMG rises to $750.   I wouldn't say there is a systematic flaw in valuation. I think there is just a lot of ignorance. Markets are more open to household investors than ever before. You used to go to your broker and ask him what's up and he'd give you the inside scoop since you pay them money. Now you go onto marketwatch and get some random nobody's opinion on everything and make stock selections based on that.   But eventually the chickens come home to roost and things will correct itself. Big players will jump ship and cause signals to other traders to jump ship. The public can pump stocks up pretty high but it doesn't just go to infinity. Eventually someone will stop and say, ""wtf is going on"" and start selling. Stocks are sold on a basis of a limit order book so it's real prices that people are paying. People don't care about prices currently because most don't have any finance knowledge but want to invest their own money.  They just hear about Tesla doing something amazing (from some clickbait article or news outlet) and can't stop thinking about buying Tesla. They go to Chipotle and think ""wow this place is so good and hip, they must be a great investment"".   The markets have been filled with more subjective analysis than ever before especially with so much low quality information at your fingertips. Equally ignorant people startin blogs about investment and personal finance being shepherds for other ignorant people. In the end they all lose.  People who exclaim ""this stock is going up to $250 easily"" with literally zero quantitative analysis or even a baseline reference point to back it up are prime examples of this.   Ignorance of markets and cheap money almost always lead to market runs that end catastrophically. Dot com bubble, 1929 market crash, 2008, it's always the same. People who have no business taking loans out or buying on margin or leveraging positions with debt only to get fucked over once things are brought back down to Earth. After 2 runs of QE, we now have cheap money and with everyone being a crier for their personal investment strategy, we now also have rampant ignorance.   I don't expect things to last but no one can call the bottom or the top, or else you'd be very very rich. Have a safe portfolio, don't try to time the markets. Have a strategy that hedges against unexpected change, don't try to gamble on this change. Because it's ultimately impossible to predict the movement of every single person on this earth that invests their money into markets. So don't try. Just be prepared.   ----  To expand further into valuation theory:  at the end of the day, people invest their money to make more money.  It's as simple as that.  If your money doesn't grow in an investment vehicle, it's ultimately a shit investment.  But no one values intrinsic value of a company's equity before they decide whether or not $380 for TSLA is a good/bad deal.  As a result, stocks can be pumped up way higher and people still see the gains on their stocks through capital gains fueled by other optimistic investors.   Non-zero sum goes both ways.  People can make shitloads of money on stock without an equitable loser--people can also lose shitloads on stock without any real winner emerging from the rubble.  When this bubble bursts, lots and lots of people will lose money on TSLA when people's expectations become rational and they stop paying $300 a share for a negative or 70 PE ratio.  It's insane what multipliers people will pay for these companies without even realizing the implication--if you buy a share of a company with a PE ratio of 70, you just paid 70 times their earnings for a share.  In an ideal world where they released every single penny of earnings as dividends, it would take you 70 periods to reclaim your money on that share.  This obviously doesn't take into account capital gains, but capital gains aren't supposed to be this irrational to where a stock can be pumped up into 70x PE ratio in the first place.  It's a whole messed up web of confusion and irrationality and eventually something will catalyze a reaction.  Imagine a market where everyone just agreed to pump up a single stock to infinity and everyone just rakes in shitloads of money.  Would this work?  Of course not.  It's literally a pyramid scheme that relies on future generations to constantly inject capital--no real value is being created by this scheme.  It requires constantly more future generations to continue adding money into the scheme and will crash once people stop pumping money into it.  The same thing will happen here.  Everyone ""agreed"" to pump up TSLA (in a sense) but eventually people will realize this is stupid as shit and the pyramid will come tumbling down because there is nothing they receive from this scheme other than the money from other people.  It's essentially moving money around, making 0 use of it, until people stop pumping money into the system and everyone realizes that nothing of real value had been produced through the use of this money.  Ultimately the only thing that creates real value is the money that is returned to shareholders from an outside party--the company you're invested in.  Real value is not created when people exchange stock and money.  So why do these transactions create higher values in equity?  The basis of equity valuation states that dividends are the only way for companies to raise the price of their stock, going off the traditional Dividend Discount Model.  And theoretically, that's the only logical explanation.  Buying and trading stock does nothing for the company, minus T Stock they might own.  Ultimately the only party creating real value is the underlying company.  If they aren't creating real value, then their stock should not be increasing, period.  The way they create value is by efficiently utilizing assets to generate returns on investment which can be returned to investors through dividends.  Dividends can only be increased (while maintaining an equitable payout ratio) by generating more net income that can increase the actual pool of money that can be allocated back to investors.  TSLA does not do this.  TSLA regularly loses money and overpromises.  There is no logical explanation for any of this except that everyone is irrational.    Obviously theory is not the same as in practice but the theory is important here because it's really the basis for any investment at all.  At the end of the day, a share of stock is the right to a share of the company's equity.  People own equity in companies because companies generate money that it returns back to its owners.  That's what a company does.  That's what an owner does.  If you own shares of a company, you're an owner.  And if your company does not return more money back to you YoY, then why are you invested in them?    Ultimately, you're riding a capital gains wave that will eventually subside once market irrationality succumbs to rationality.  And it always does because the real value always catches up to the fake value that is caused by pumping and dumping stocks." Pretty sure the null hypothesis here is that trading equities at a high frequency is a zero sum game.   The is no gain that isn't someone else's loss.  No goods are created, no knowledge is gained, no value is produced.  Note, I didn't say value is destroyed either. "If you're not rich, investing money will produce very small return, and is a waste of your resources. If you want to save until you die, then go for it (that's what investment companies want you to do). I suggest invest your money in building a network of friends who will be future asset for you. A group of friends helping each other have a much higher prospect of success. It has been proven that approximately 70% of jobs have been obtained through networking. Either through family, or friends, this is the vast majority. I will reiterate, invest on friends and family, not on strangers who want to tie down your money so they can have fun for the moment, while you wait to have fun when you're almost dead. Added source for those who are questioning the most well known fact within organizations, I'm baffled by the level of ignorance. Linkedin Recruitment Blog ...companies want to hire from within first; only when there are no   appropriate internal candidates will they rely on referrals from   employees (who get a bonus for a successful  hire) and people who will   approach them through informational meetings. The latter category of   jobseekers (you) have the benefit of getting known before the job is   ""officially posted."" For those who believe loaning money to friends and family is a way of losing money -> this is a risk well worth taking -> and the risk is much lower than loaning your money to strangers -> and the reward is much higher than loaning your money to strangers." The CEO of a public company can, and often does, buy (and sell) the stock of his company. In fact, frequently the stock of the company is part of the compensation for the CEO. What makes this legal and fair is that the CEO files with the SEC an announcement before he buys (or sells) the stock. These announcements allow us 'in the dark' people enough warning ahead of time.  See, for example, the trades of UTX stock by their public officers. As for trading on information about other companies, if I am not mistaken... that is why Martha Stewart wound up in prison. So, yeah, it does happen. I hope it is caught more often than not.  On a related note, have you seen the movie 'Wall Street' with Charlie Sheen and Michael Douglas? The worth of a share of stocks may be defined as the present cash value of all future dividends and liquidations associated therewith.  Without a crystal ball, such worth may generally only be determined retrospectively, but even though it's generally not possible to know the precise worth of a stock in time for such information to be useful, it has a level of worth which is absolute and not--unlikely market price--is generally unaffected by people buying and selling the stock (except insofar as activities in company stock affect a company's ability to do business). If a particular share of stock is worth $10 by the above measure, but Joe sells it to Larry for $8, that means Joe gives Larry $2.  If Larry sells it to Fred $12, Fred gives Larry $2.  The only way Fred can come out ahead is if he finds someone else to give him $2 or more.  If Fred can sell it to Adam for $13, then Adam will give Fred $3, leaving Fred $1 better off than he would be if he hadn't bought the stock, but Adam will be $3 worse off. The key point is that if you sell something for less than it's worth, or buy something for more that it's worth, you give money away.  You might be able to convince other people to give you money in the same way you gave someone else money, but fundamentally the money has been given away, and it's not coming back.