Is Stock Market Investing a Zero Sum Game?

Written by: Steven Gibbs | Last Updated on: April 29, 2024
Fact Checked by Jason Herring and Barry Brooksby (licensed insurance experts)

Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.

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This is an updated article originally written in 2020.

Back in early 2020, the DOW plunged in the wake of an oil war and concerns about COVID-19.  This did more than raise a few eyebrows in the financial community and had the rest of the masses furiously racing back to monitor their portfolios.

In February 2022, we have another turbulent market, as concerns over high inflation and possible Russia-Ukraine conflict are causing a lot of fear and volatility.

And it is not just stocks, but also crypto, as Bitcoin and Ethereum have dropped significantly from all time highs.

These market incidents, which tend to occur every few years, are a reminder of the fickle nature of the stock market and crypto markets. But let’s face it, we’ve become somewhat accustomed to these events as part of a cycle.

To sum up, you’re not investing in the stock market, you’re speculating.”

George Antone

The Peril of Speculating in the Stock Market

We’re told to stay in for the long game where inevitable gains will follow. However, in my estimation, the portrayal of stock market gains is, in many ways, one of smoke and mirrors.

In his popular book, Money, Master the Game, self help guru Tony Robbins concludes, in a nutshell, that the cards are stacked against the individual investor, and this applies even to the relatively sophisticated.

Robbins interviewed many of the top Wall Street moguls and concluded that individuals who are NOT experts should stay away from individual stock plays and gravitate toward low cost indexed mutual funds.

By indexed funds, Robbins is talking about funds that invest in a batch of stocks trading on a particular index such as the S & P 500.

Robbins advocates, and I’m heavily paraphrasing, that the only smart play is purchasing expertly managed funds AND finding balance in various funds so that inevitable losses are offset by gains in other areas.

Robbins approach is rather conservative and grounded in premise that the “balanced funds approach” is exactly what the wealthy do. However, his analysis also relies upon a serious observation that high frequency trading and the rapid movement of large blocks of stock has stacked the deck hugely against mom and pop. Those same folks are consistently counseled to “buy and hold”.

Has something fishy been occurring on Wall Street?

In another good read, Flash Boys, Michael Lewis, author of the another popular book and recent movie The Big Short, provides an overview of the evolution of Wall Street that occurred during 2002 to 2009. What occurred  in his experience could be summarized as kind of a sci-fi takeover of the markets by computer algorithms and high speed optics.

Lewis lays out in painstaking detail the plight of one extremely bright Canadian professional trader with the Royal Bank of Canada (RBC), named Brad Katsuyama. Katsuyama, with all of the resources of a longstanding Canadian bank, couldn’t understand why his large pending trades no longer could be made without an immediate reaction of the markets (increasing prices). This frustration lead him down a path of discovery. He narrowly avoided leaving trading all together and the struggle over losing his soul became a fact of life.

Both of the above books are about speed but not in the vein of the Fast and the Furious. Fiber optic cable speed completely transformed Wall Street over a few years, and left the mom and pop investor choking on a cloud of dust. Both authors offer a keen insight into the present day stock market which is really a high tech casino where billions are made and lost in nano seconds. More about that in a bit.

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Why is Stock Market Investing a Zero Sum Game?

A zero sum game means that this playground does NOT allow a win-win situation. In the stock market, there must be a winner and a loser, as so aptly put by the character Gordon Gekko in the movie, Wall Street in stating:

“Money itself isn’t lost or made, it is simply transferred from one perception to another.”

Gekko was, of course speaking about the stock market. You might object, saying that new investors come into the market and bring new money or that the growth of a company creates new wealth. You might also argue that some companies pay dividends and this creates wealth, and both scenarios are of course true.

However, just because new people bring new money into the game doesn’t make it a positive sum game for the participants. This just brings more money into circulation, creating more wealth for the principals.

Despite the offering of dividends, most average folks buy stocks for trading and the ongoing stock value remains highly speculative. This is NOT really investing and is certainly not a win-win situation for the participants.

Stock trading is therefore a zero sum game for the majority of the participants and a sub zero sum game when you consider the brokerage fees.

So, who wins in the stock market game?

Every dollar that some investor wins in the stock market, some other investor lost.

The brokers, bankers and fund managers, and other sophisticated traders with access to high speed, high frequency trading. In the casino of the stock markets, these people are the house.

We’re back to the bankers winning again.

With every trade, the brokers and bankers get paid. They are profiting from the risk taken by the average investor.

Wall Street Fees – Smoke and Mirrors

When returns are calculated for mutual funds and hedge funds, they often tout large average returns and this is often misleading because this data generally does NOT fairly account for years with losses.

A compound annual growth rate is a more accurate measure for stock performance.

Hedge funds often charge large fees for participation that substantially reduce profitability.

Investing vs. Speculating 

I define the difference between investing and speculating as the level of certainty that can be reached concerning the key aspects of the deal.

For example, when Warren Buffet invests in a company, he conducts extensive research into all aspects of the business and industry and even talks with the principals. By the time he invests his money, Buffett has taken a large part of the risk (the speculative part) out of the equation.

I suggest that the real investors in the stock market scenario are the large shadow banks who employ traders. These aren’t typically your local bank down the street that holds your deposit to make loans.

Wall Street banks profit from your risk in the same way by using your money to make trades and charging a commission to do so. This brings us all the way back to those key secrets in becoming the banker as shared by George Antone in his book, The Banker’s Code.

Financial Leverage 

Your investments should offer you a way to gain financial leverage with your money. If you invest in a stock at the wrong time for whatever reason and the value plunges, you’ve just lost ALL your leverage. Hefty brokerage fees also work against you by depleting your account and lessening your leverage.

In real estate as in stocks, your leverage is your cash investment verses your equity. Investing in real estate without proper knowledge is also considered speculating. The difference is that financing is more common in real estate and offers a greater opportunity for leverage. Real estate markets also decline more slowly and predictably by comparison to stocks.

Velocity of Money

Short term swing traders use sophisticated charting methods to decide when to get in and get out of a particular stock and this entry and exit can occur within only hours. This can afford these traders the advantage of velocity of money allowing them to make money quickly. However, this is still a zero sum game and is not for amateurs because it is just as easy to quickly lose money.


Investments such as real estate allow you to create an arbitrage with your money, whereas the stock market cannot do so. Don’t believe me? Ask your local bank to give you an equity loan against a block of stock or mutual fund. Unless you’re a heavy hitter who warrants some special treatment, your banker will conclude that your idea is simply too risky.

Yes, you can borrow against your 401(k) account. However, there are disadvantages when doing so that work against creating an arbitrage with your money.

For example, if you borrow against the equity in your real property at 5% and re-loan the funds at 10%, you’ve just created a 5% arbitrage. As you receive payments, and repay your equity loan, your cost of financing are reduced, thereby increasing your arbitrage.

Playing a Positive Sum Game

The point of all of the above is that while the stock markets have become the investment option touted by the pundits and the masses for wealth building and retirement, this arena is plagued by risks and high costs. As such, there may be other less speculative options for you to consider.

Take a look at who are the key players pushing stocks and mutual funds and what they stand to gain. The house needs the average consumer to buy in to the game so they can keep profiting from their risk.

For a sophisticated stock market investor like Buffett (Warren not Jimmy) it is possible to make the stock market a positive sum game in some respects by taking some of the speculation out of the equation. For those who are unable to do this, you might consider staying out of this minefield.

Other ways to gain wealth and protect your loved ones, such as real estate investing and purchasing dividend paying life insurance for private financing strategies may be more advantageous in the long term.

These strategies challenge the current dogma and offer guaranteed cash accumulation in an environment that offers ongoing liquidity and the potential to accomplish velocity and create an arbitrage through becoming a private hard money lender.

Whereas any gains that you make in stocks will be reduced by capital gains taxes, most dividends paid as per a participating whole life policy are tax favored as not income but rather a non-taxable return of premiums.

A properly structured life insurance policy used for infinite banking strategies can offer all of the above advantages and more.

Asset Protection 

As a sidenote, stock trading accounts and mutual fund accounts do not have the asset protection that other financial accounts (such as IRA and 401(k)) accounts AND cash value life insurance. This lack of asset protection makes your stock account even more risky and this threatens the security of your retirement and estate plan.

After all, last week when the markets cratered monetarily, dividend paying whole life was unaffected and stood strong just as it always has. While stock market investors NOW attempt to catch up, whole life policy owners never missed a beat and their wealth continued to compound, ALL THE WHILE accruing cash value growth to the policy owner.

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