[franticpedantic]

No, your friend is not left holding the bag. He's left holding the money you paid him for the equity. You were the one in the red at first, but since the value of your stake could grow and pay you in dividends you overcame that loss. Both of you gained money - that's the point. He didn't even lose the opportunity for more money, because he needed the initial investment to even grow the company in the first place.

Here's the key point you're missing. In order for it to be zero sum, if you make a million dollars off of this company, he needs to LOSE a million dollars. Not the opportunity to make a million dollars, an actual million dollars. Clearly this does not happen. You are totally and entirely wrong here.

The market doesn't grow because new money flows in. This is mercantalism and your understanding of economics is hundreds of years old. The market grows because companies create REAL (not nominal) value that didn't exist before. I can explain this in more depth, clearly your financial friends aren't very good at their jobs (it's quite common).

The reason your oil trader friend agrees it's zero sum is because the futures market is zero sum. The stock market is not.

[creamyhorror]

Okay, I accept that I could be entirely wrong. I had forgotten about the role of dividends in determining the value of a company, and that companies definitely do appreciate in real value on average. (I should also have clarified I was thinking only about a closed secondary market, as opposed to the primary market where funds flow into companies.)

What I'd like to understand is this: if the total real value of companies is expanding in the long term, then isn't the stock-trading/investment game about who manages to pick the fastest-growing stocks and capture the most price appreciation? The net gain in value would exist as long as people had invested in the first place, but its distribution is zero-sum in that the net gain in value is captured by someone or other. I guess this is what I was thinking of when I talked in earlier posts about "closing out" all trades - if all trades are closed out at one point in time, then all value in the market is captured by one player or another, and the result is zero-sum.

If the total gains in real company value are influenced by the trading game in the secondary market (e.g. total gains depend on the volume of trading in the secondary market, perhaps through new stock issues), then the question does seem a little more complicated.

Glad to have had this discussion. I guess I need to read up on economics more, although googling didn't turn up a lot of actual literature on stock markets and value-creation right away.