Everyone wants to "beat the market." For every dollar McDonalds gets, Burger King is not. For every dollar Microsoft gets, Apple is not. There are no group hugs unless you work for a non-profit (and even then, for every dollar your non-profit gets, some other, equally deserving non-profit is not).
This sounds like a very zero-sum model. Do you know, that dollars don't get destroyed by spending them? (And that this doesn't even matter, because it's wealth creation that matters (supply) and not demand?)
Certainly, but assuming it can't be zero-sum leads to absurdity as well.
What about high frequency trading? Most of it is zero sum, first one to arb the difference wins. The economy doesn't derive any higher value from it if the difference would've been corrected within a couple seconds (or a few minutes) anyways. It's not the same as buying a burger.
The value investor gets an abstraction over the ocean of algos and traders trying to out-game each other. The abstraction is that there's a market price and a book depth. The deeper the book, the more stock the value investor can move around without being gimped by increasingly undesirable prices. The more traders, the deeper the book.
Finance pundits worry about the implications of traders gaming each other. Let them game each other. The value investor sees a market price backed by millions of dollars of offers within pennies of each other. Should his trades move the market, much more liquidity will spring to life. The value investor feels fine.
Hm, I think we're talking past each other although I'd like to hear more exposition on your comment because it doesn't really make sense to me.
I was talking more from the perspective of someone who's generating cash. Burger King pays suppliers for meat and whatever (or raises cows in their own operation) and you pay them for a burger. You get a burger, they get cash, pay people, value creation all around.
In Wall St, on the other hand, theoretically we should see value creation through efficient routing of capital to the right places and the people who make that happen are rewarded for their effort. In practice, I feel, it's often a video game where they manage to nibble a billion little pieces away from the value-based investors who are actually performing an economic function. So in some scenarios, they're a net drain, rather than part of a robust economy. That's where my zero-sum analogy came in. YMMV.
Yes, the difference between theory and practice can be startling in finance. But I am more wary about fleecing the customer than about counter parties in a high frequency trade. [1] And of course there's also always making money by rent-seeking behaviour. E.g. the implicit subsidy banks get in lower borrowing costs on the market once they are to big to fail.
[1] Mutual fund managers or hedge funds who take a lot of fees are probably quite a drain on your their clients returns.
> For every dollar McDonalds gets, Burger King is not. For every dollar Microsoft gets, Apple is not.
I'm pretty sure that's not the case. Apple and Burger King would probably never be what they are today without MSFT or Mac. And perhaps vise versa also.
