“Practical Advice about Finance and Technology”

Is the money that you are making from a transaction on the stock market really someone else’s? Odds are yes!   But don’t feel bad. The stock market works on supply and demand. What you are buying someone else is selling or the pricing will be reduced till there is a value is sufficient for someone to either buy or sell it. The reason why that it is not a zero sum market is that in some rare cases the market maker can control the price, by either reducing the price of the traded item or controlling the quantity of the stock in the market.
The main reason why I think that the stock market is not like a zero sum game is that value is always created.  This value does not coming from another person but from the company itself. Dividends are a perfect example of this. The investor gains value without having that value annexed from another investor.  People always forget the most import part of being a shareholder also has value. As a shareholder you get to assist in setting the policies of that company by voting for either amendment the charter or in electing board members. That in itself has a value. The ability to change, manipulate and improve what is around you.  A share holder can even get issues to be noticed by the company.

Once again the credit crunch finds a victim, this time it is no longer an average American but one of the biggest investment banks on Wall Street Lehman Brothers.  Yesterday (September 12, 2009) an emergency meeting was held between the Treasury Department, Federal Reserve, Securities and Exchange Commission and the CEOs of Goldman Sachs Group Inc, Merrill Lynch & Co Inc, JPMorgan Chase & Co and Citigroup Inc. All of them were at this meeting to decide one thing the fate of Lehman Brothers. Only two options are left on the table a bailout or the liquidation of the company. Either one of these is fine with me, but the issue arises that if there is a bailout then the banks that are providing the funds for the bail must do it without the backing of federal capital. This may cause additional strain on the investment banking community which is already in a very strained position. This bailout may even break other investment banks if there is another downward occurs in the economy.

The good news is that it is still possible to make money off of this misfortune. In the form of purchasing stocks (risky) or options.  I would personally use options. The prices are perfect for me there is a 20-40 cent spread (Strike – Option cost –share price= spread) between the LEH option and its current traded price. Honestly I don’t think that there will be a solution in the next 2 weeks. Hence the price will still fall.  

This is only my opinion but I trade by my gut.