The renowned financial author “Green Horn” once stated: “The stock market is a zero-sum game.” 1 2 I would like to expand on his perspective to make the concept more complete.
I’d like to refine Green Horn’s statement as follows:
Short-term speculation in “non-productive assets” is a zero-sum game.
Long-term investment in “productive assets” has the potential to be a positive-sum game.
Productive vs. Non-Productive Assets
Non-productive assets include things like tulips, gold 3 4, or Bitcoin. These assets cannot produce more of themselves; a bar of gold will never produce a smaller bar of gold.
On the other hand, productive assets are things like businesses 5, farms, real estate, or even an apple tree. These assets have an output—they generate tangible value that is returned to the owner.
My primary recommendation for investors is to prioritize productive assets and avoid non-productive ones for the following reasons:
The Greater Fool Theory
Investing in non-productive assets relies entirely on “increasing participation.” You need a “greater fool” who believes the price will go even higher to buy it from you, hoping that an even greater fool will buy it from them later. This is known as the Greater Fool Theory. Because the asset itself produces nothing, any price increase is driven by investor expectation rather than an increase in intrinsic value.
This “bigger fool game” can sometimes last for years, but it ultimately ends in tragedy 6. Unless you are confident in your ability to exit before the last fool appears—and do so every single time—it is a losing strategy. Remember: no matter how large the numbers are, multiplying by zero always results in zero. Such an investment style is simply too exhausting.
By filtering out non-productive assets, investing becomes much simpler. I no longer need to study gold, Bitcoin, or various commodities. It clears a lot of unnecessary noise from my plate.
The Role of Time
I have also learned that the investment horizon is closely tied to the Greater Fool Theory. The shorter your timeframe, the more you rely on the “next fool” to take the baton, regardless of whether you are holding productive or non-productive assets 5.
This is a lesson from Warren Buffett: whether it is ultra-short-term trading 7 or even a 3-to-5-year horizon 8 9, these are often just variations of the greater fool’s game. The shorter the duration, the closer it gets to a Zero-sum game.
Escaping the Fate: The Positive-Sum Game
To escape this cycle, there is only one way: lengthen your investment horizon and invest in productive assets (companies). By allowing great companies to earn profits and increase their intrinsic value, you let the power of compounding work for you. This transforms the game into a positive-sum game where the participants are “smart money.”
To participate in this positive-sum game, you need a different set of skills:
The ability to identify high-quality companies.
The conviction to hold through market fluctuations.
Because this is a long-term play, you don’t need to watch the ticker every day. You don’t need to sell your portfolio every few years just to struggle to find replacements. It is a completely different—and much more rewarding—game.
Since I embraced the concepts of productive vs. non-productive assets and the Greater Fool Theory, my investment philosophy has solidified, and my results have improved significantly. Once I discovered that “Compound Interest Machines” (exceptional companies) actually exist, I was hooked. There is no going back.
Investing in “Compound Interest Machines” for the long term isn’t as difficult as it sounds. In fact, you’ve likely encountered them before. I will introduce them to you in the next article!
(The End)
Footnotes
“Zero-sum” refers to a situation where one person’s gain is exactly equal to another’s loss.
In economics, many theories are difficult to verify. Unlike the “double-blind tests” or “meta-analyses” used in science, social sciences have too many variables (new capital, friction costs, etc.). I believe Green Horn’s statement is a perspective rather than a proven law—but in economics, ten people often have nine different opinions anyway. It’s about what you choose to believe.
These metaphors are drawn from the Berkshire Hathaway 2011 Annual Report (p. 18). The section “The Basic Choices for Investors and the One We Strongly Prefer” changed my entire worldview. Investment shouldn’t be about waiting for a “bigger fool”; it should be about the asset creating value for the next person in line.
Buffett frequently highlights the downsides of non-productive assets like gold and Bitcoin during his annual shareholder meetings (e.g., 2000 and 2018).
Note: This refers to value-creating productive assets, like profitable companies. A company that destroys value (like a failing farm or a poorly located property) can result in a worse outcome than a non-productive asset if you can’t find a buyer.
As Buffett said in the 2018 Annual Meeting: “Anytime you buy a non-productive asset you are counting on somebody else later on to buy it… it does come to a bad ending.”
While productive assets are inherently superior, their “productivity” has little impact over a very short period (one quarter or less). Short-term price movements are driven by news and speculation, not financial fundamentals.
At the 2007 Shareholder Meeting, Buffett called the obsession with beating other investors daily a “fool’s game.”
At the 1998 Annual Meeting, Buffett suggested that even a 3–5 year horizon relies somewhat on the “next big fool.” While many successful investors use this timeframe, it is important to understand the rules of the game so you don’t become the last fool.
Some argue: “Don’t you still need someone to buy your stock to make a profit?” Buffett’s answer is: “We hope we don’t have to sell our investments forever.” My answer: With a truly great company, the person buying from you isn’t the “next fool,” but the “next smart investor.” The only reason to sell is to move from a good company to an even better one. In that scenario, everyone wins.
Footnote 註釋：
- “Zero-sum” refers to a situation where one person’s gain is exactly equal to another’s loss.[↩]
- In economics, many theories are difficult to verify. Unlike the “double-blind tests” or “meta-analyses” used in science, social sciences have too many variables (new capital, friction costs, etc.). I believe Green Horn’s statement is a perspective rather than a proven law—but in economics, ten people often have nine different opinions anyway. It’s about what you choose to believe.[↩]
- These metaphors are drawn from the Berkshire Hathaway 2011 Annual Report (p. 18). The section “The Basic Choices for Investors and the One We Strongly Prefer” changed my entire worldview. Investment shouldn’t be about waiting for a “bigger fool”; it should be about the asset creating value for the next person in line.[↩]
- Buffett frequently highlights the downsides of non-productive assets like gold and Bitcoin during his annual shareholder meetings (e.g., 2000 and 2018).[↩]
- While productive assets are inherently superior, their “productivity” has little impact over a very short period (one quarter or less). Short-term price movements are driven by news and speculation, not financial fundamentals.[↩][↩]
- As Buffett said in the 2018 Annual Meeting: “Anytime you buy a non-productive asset you are counting on somebody else later on to buy it… it does come to a bad ending.”[↩]
- At the 2007 Shareholder Meeting, Buffett called the obsession with beating other investors daily a “fool’s game.”[↩]
- At the 1998 Annual Meeting, Buffett suggested that even a 3–5 year horizon relies somewhat on the “next big fool.” While many successful investors use this timeframe, it is important to understand the rules of the game so you don’t become the last fool.[↩]
- Some argue: “Don’t you still need someone to buy your stock to make a profit?” Buffett’s answer is: “We hope we don’t have to sell our investments forever.” My answer: With a truly great company, the person buying from you isn’t the “next fool,” but the “next smart investor.” The only reason to sell is to move from a good company to an even better one. In that scenario, everyone wins.[↩]
