This past summer when the big wigs at Goldman Sachs were testifying to lawmakers an interesting theme emerged. Senators and financial commentators alike repeatedly made the comment, “Well, if Goldman Sachs was selling it, don’t you think they wanted to get rid of it? Don’t you believe they thought it was bad? In every transaction there is a winner and a loser, so whoever was on the other side of the trade with Goldman was probably the loser.”

This begs the question, is investing a zero sum game? Does the presence of a winner necessarily mean there has to be a loser? If someone unloads a stock and the price goes up, has the seller necessarily lost and the buyer won? Let’s examine both underlying issues.

First, traditional equity investing is anything but a zero sum game. In fact, at its essence, the stock market represents the inherent nature of capitalistic growth. In other words, an economic system exists, namely capitalism, that facilitates if not fosters the creation of wealth (in all senses of the word) through the aggregate efforts of all the participants. Simply put, while there are always some people who do better than others across any given time period, society as a whole can and does benefit – and in the realm of the stock market, net wealth is created for all its participants. It is not as though there is some fixed amount of wealth that is just being moved from one pocket to another. Microsoft created hundreds of billions of dollars in wealth (to shareholders, suppliers, employees, etc – think of all the various constituents positively impacted by MSFT over the last three decades) out of thin Santa Fe air.

To the second issue of whether any given transaction is binary, as to whether by definition either the seller or buyer is the ‘winner’ in any given stock trade, I would suggest this is emphatically not the case. You don’t know what is behind each trade or what an investor’s total circumstances are which led to the decision to buy/sell. Take these examples: Investor A owns 1,000 shares in Altria (MO). He decides to sell to Investor B in order to pay his child’s Yale tuition. MO increases 5 percentthe following week. Does this mean that investor A ‘lost’? That he should not have sold? The ownership of stocks and other assets is usually a means, not an end. More specifically it is a means towards some other financial objective. In this case, Investor A may have owned MO for many years, reaping the rewards of this superior stock, and now it was time to sell to use the proceeds to make an even more important investment, namely his child’s education. Investor A was anything but a loser in this scenario, regardless of how MO traded in the subsequent days, weeks, or even months.

In another scenario, someone may buy a given stock but have an offsetting, or hedged position, elsewhere in his portfolio. I have many clients who use publicly traded stocks as a hedge against their illiquid real estate holdings, for example. They may appear to ‘lose’ on one transaction (e.g. shorting real estate stocks in 2004/2005/2006) but these positions are far more than offset by gains elsewhere (i.e., the value of their vast real estate holdings going up during the bull real estate market). The investment served its intended purpose even if on the surface it seems as though one party was a loser.

It makes good headlines to say in effect, “If Goldman sold it, you were the sucker.” But as with most things on TV, that oversimplifies both how our economic system works and ignores the specific circumstances of the parties involved. Bottom line, focus on your own objectives and your unique circumstances. As a society we are so in tune with how we are doing relative to the person down the block. Are we ‘winning’ when compared to them? Yet we are like the proverbial frog which has been in a pot of water that has increased in temperature by subtle one degree increments over time. If we take a step back we can see that, as a society, we have made incredible strides over the last 100 years. We are better off than our parents, and our kids will invariably be better off than we. Our economic system has lead to aggregate quality of life improvement. We can all be winners.