Is the stock market really a zero sum game? Movie’s like Wall Street and other forms of media have popularized the idea of the stock market being zero sum, meaning that for every winner there is also a loser, this is true to a point, but it is blow out of proportion.

There is an old stock market proverb “A rising tide lifts all boats”. This means that nearly everyone benefits from good times in the stock market, even those who probably should not be benefiting.

Let’s say that you invest in 100 shares of a theoretical company, we will call it company A. When you buy these 100 shares, you are buying them from someone, they do not come out of thin air. If company A doubles in price right after you buy it, you have obviously benefited. However the person who sold you shares did not lose any money, he or she just missed out of gaining money.

When the market goes down, everyone’s portfolio’s go down, except for those who are short selling the market. When the market goes up, nearly everyone benefits except for those who are participating in “shorting” the market. Therefore the stock market is not a zero sum game.

This is actually good news for investors all over. You do not have to be any smarter than the person next to you to do well in the stock market. You do not have to outsmart the investor that sells you shares of a company or the investor that buys shares of a company from you. This means that you also do not have to put in a crazy amount of work into your portfolio to do well.