Doug’s Dynamic Drivel

The best explanation yet for the that is the , compliments of one wise man -

… I could have shown them the “best case” example, where investors buy a stock and sell it for twice as much. In other words, I buy a stock for $1, and then sell it for $2 (making a 100% profit).

And then that investor who bought it from me can make a 100% profit of $2 (doubling his money, too) by selling the stock to someone else for $4. And how does that guy who paid $4 for the stock make a similar profit? By selling the stock to someone else for $8!

I know what you are thinking. You figure, “Hey! This looks easy!”

So, now it is time to add up, so let’s add up, which I am usually pretty good at, if the numbers are few, are all single-digit, I can write it all down and can get back to you sometime early next week with the answer. Fortunately, this is such a case.

So, how much profit was made from all of this selling? $7 (= $1 + $2 + $4)! How much money was spent? $15 bucks (= $1 + $2 + $4 + $8)! Hahaha! Everybody so far has made a 100% profit, and yet twice as much was spent as was made in profits? A lousy 50% total return on investment? Hahaha!

And the last guy, who may be otherwise known as the Last Fool In Line who bought at the exact top at the exact highest price, still has to find somebody to sell to at a profit, or the system goes into loss mode. If he sells at $7, taking a $1 loss, then total profits for the system are reduced to $6 (= $1 + $2 + $4 - $1)! And yet the total amount spent in all this investing has climbed to $22 (= $1 + $2 + $4 + $8 + $7)! Now return on investment is 6/22 = 27%! Hahaha!

It gets worse from here, and no matter how you slice it, dice it, package it, or make Julienne fries with it, the majority must lose so that a minority can gain, as it is a . And that minority is usually insiders, the banks and the -.

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