Thread by @caswapnilkabra

One of the many misconceptions people have about investing in stock market is that it is a zero-sum-game. They have this misunderstanding that one’s income is someone else’s loss.
But no, that is not how things work.
Here’s a simple thread to explain this🧵👇
(1/n)

To begin with, let us get this clear as to how a zero sum game theory works. (2/n)

Say, there are 7 people playing a simple game. Their names are Red, Purple, Royal blue, Sky blue, Sea green, Green and Yellow.
They all chip in Rs.100 and keep the money (Rs.700) on the table. (3/n)

Now, they write their names on a chit and shuffle the chits. Then, they draw one chit. The person whose name appears on the chit shall be the winner. (4/n)

If, say on drawing the chit, Red’s name appears then Red shall be the winner. He shall hence take away Rs.700. If you observe, here all other players have lost their share of Rs.100. (5/n)

So, to summarize:
👉 Net gain of Red shall be Rs.600 (he won Rs.700 but he invested Rs.100).
👉 Net loss of all other remaining players in total shall be Rs.600
👉 In totality, the net gain and the net loss shall be ‘0’. Hence, this is a zero sum game. (6/n)

This, is something which happens in a lottery or other game of chances where the underlying asset is not growing. (7/n)

Let us understand how the investing in stock market works.
Assume, that these same 7 people are dealing in shares of a company which is growing. (8/n)

Following is the summary of transactions:
👉 Red buys shares of a company in an IPO (Initial Public Offer) at Rs.100. He sells these shares to Yellow at Rs.120.
👉 Yellow then sells the shares to Green at Rs.140.
👉 Green, sells them to Sea Green at Rs. 160. (9/n)

👉 Sea Green, sells it to Sky Blue at Rs.180.
👉 Sky blue transfers it to Royal Blue at Rs.200.
👉 Then, at last Royal blue sells the shares to Purple at Rs.220. (10/n)

Now, let me tabulate the profits earned by each of these contestants. (11/n)

You see, almost everyone is earning Rs.20 as net profit except ‘Purple’ as he decided not to sell his shares.
Now, if you sum up the Net Profit of all the contestants put together, it comes to Rs.120. (12/n)

This is so very different from the zero-sum-game, where the net aggregate profit comes to ‘zero’. (13/n)

In a Stock market, investing in a growing company is akin to planting a seed. The seed transforms into a sapling and sapling into a beautiful tree. It grows further to give fruits which are similar to dividend and bonus. (14/n)

And as it grows, it keeps on giving the benefit to everyone who comes in its ambit!
Look at how all the indices like NIFTY, SENSEX, etc. transformed into a beautiful tree from a seed. Everyone is a net winner in long run.(15/n)

Tagging @Vivek_Investor, @dmuthuk for better reach 🙏