The US stock market is absolutely not a zero-sum game—it’s a negative-sum slaughterhouse. There’s only one strategy that guarantees consistent wins for retail investors.

Many U.S. retail investors hold a misconception that the stock market is a zero-sum game—essentially, one person’s gain is another’s loss. But frankly, this belief is fundamentally inaccurate.The stock market is inherently a negative-sum game.。

Many people assume that zero-commission trading in U.S. stocks means there are no transaction costs—that’s the biggest illusion. While brokerage commissions may appear nonexistent, every trade hides embedded cost deductions: SEC fees, FINRA regulatory fees, bid-ask spreads, slippage impact costs, and—uniquely in the U.S.—differential tax rates on short-term versus long-term capital gains. Each buy or sell order chips away at your account’s total equity.

The harshest reality is:The more frequently you trade, the faster your principal erodes.High-frequency trading may seem like seizing opportunities, but in reality, it continuously pays fees to the market, exchanges, and the tax authority—gradually draining your account over time.

There is a classic and continually updated academic paper in finance titled 'Trading Is Hazardous to Your Wealth,' based on long-term research by scholars Barber and Odean. They tracked tens of thousands of real U.S. retail investor accounts and reached a sobering conclusion: the top 20% of investors with the highest turnover rates earned annualized returns significantly below the market average.6.5 percentage points lower。

This data is more relevant in the U.S. stock market than in China's A-share market. Domestic retail investors tend to trade frequently yet earn low returns, whereas the U.S. market imposes heavier penalties on high-frequency speculators: short-term trading not only accumulates frictional costs quickly, but also incurs high personal income taxes on short-term gains, which directly erode most of the profits from short-term trades. Looking at actual market data, whether in the A-share or U.S. markets, the pattern remains consistent:The smaller the account balance, the more frequent the trading, and the more aggressively one chases rallies and cuts losses, the greater the eventual losses.。

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You can understand the stock market from a simpler perspective: it’s a card game with continuous rake. As long as you keep placing bets frequently and repeatedly entering and exiting the market—even with a decent win rate—the long-term outcome is inevitable: your capital will steadily erode until you’re eliminated by the negative-sum rules.

The reason why the vast majority of retail investors fail to profit over the long term—and inevitably lose money in the short term—is that they don’t distinguish between two fundamentally different types of returns in the stock market:positive-sum returns and zero-sum returns。

Buffett has repeatedly emphasized throughout his career a simple yet overlooked formula for stock returns: long-term stock return = return on equity + dividend yield + valuation change.

The first two components—return on equity and dividend payouts—are real earnings generated by listed companies through their underlying business operations. They represent the market’sincremental positive-sum returns, all long-term shareholders can share in it together—there’s no question of who profits and who loses. Only the final component, valuation volatility, is pure capital speculation and sentiment-driven trading, where investors merely pass assets back and forth and掏 each other’s pockets.zero-sum returns。

Buffett’s core wealth-building logic has never been about short-term speculation; rather, it lies in drastically minimizing exposure to zero-sum games. He heavily invested in core assets like Coca-Cola and American Express, holding them for decades without selling, thereby completely avoiding the frictional costs and emotional speculation inherent in frequent trading. Instead, he steadily captured the positive-sum compounding returns generated by business operations—this is the true secret to navigating both bull and bear markets.

Munger put it even more plainly:Know where you’re going to die, and stay far away from that place.。

For retail investors in U.S. equities, speculative trades detached from fundamentals, highly volatile growth stocks, leveraged derivatives, and intraday high-frequency swing trading are the most common 'death traps.' These are inherently negative-sum games destined to lose money, yet many still chase after them blindly. In such cases, losses aren’t the market’s fault—they result from choosing the wrong battlefield.

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Many retail investors assume institutions have faster information, superior technical skills, and professional tools, leaving individual investors with no edge whatsoever. But Peter Lynch long ago offered the most practical survival strategy for ordinary investors:The greatest advantage ordinary people have has never been speed in monitoring the market—it’s the cognitive edge derived from everyday life.。

The high-quality U.S. companies you encounter through daily consumption and life—such as leaders in consumer goods, technology, and essential services—are often already recognizable to you before institutions finish their full due diligence or deploy capital. This innate, life-grounded insight is the retail investor’s most fundamental advantage against institutions and algorithms.

Unfortunately, the vast majority of people get their priorities backward—they discard their only edge and instead dive headfirst into candlestick chart battles and intraday volatility, racing against professional algorithms and quant funds on speed and reflexes. By pitting their weaknesses against others’ strengths, losses naturally become the norm.

Let’s also discuss Soros’s survival-oriented trading philosophy. While his theory of reflexivity is difficult for retail investors to implement, everyone should engrave this sentence in their mind:Investing has never been about how often you’re right; it’s about whether you captured enough profit when you were right and kept your losses manageable when you were wrong.Retail investors have limited capital and weak risk tolerance—they simply can’t withstand a few large losses. Therefore, the only viable survival strategy for retail investors is:Only take asymmetric risk-reward opportunities—where losses are limited if you’re wrong, but gains can compound over time if you’re right.and firmly avoid short-term speculative trades with low win rates and inverted risk-reward ratios.

Taking into account the characteristics of the U.S. stock market, here are three simple, actionable, and sustainable trading rules that can help preserve capital and generate long-term profits—enabling you to escape negative-sum traps and steadily capture positive-sum compounding returns.

Rule One: Use the half-Kelly criterion to control your trading frequency and eliminate unproductive high-frequency trading. The core logic of the Kelly formula is straightforward: optimal position size = win rate − (loss rate / reward-to-risk ratio). As retail investors, we should only usethe half-Kelly formula,which, in the high-tax, high-volatility U.S. equity market, offers greater conservatism and resilience—effectively shielding you from catastrophic drawdowns caused by consecutive losing trades.

Do the math yourselves: in US equities, achieving a 40% win rate with short-term momentum chasing or intraday trading is already top-tier performance. More critically, short-term trading always suffers from an inverted risk-reward ratio—you rush to take profits after gains of just 2–3%, yet only reluctantly cut losses after declines exceeding 5%. Plugging these numbers into the Kelly Criterion shows that the theoretically optimal position size for this trading style is actually negative—and remains negative even after halving it. This counterintuitive conclusion reveals the ultimate truth behind retail investors’ profitability:In a negative-sum market, the optimal strategy is simply not to place reckless bets and to minimize trading.Trading less and avoiding unnecessary activity alone lets you outperform 80% of hyperactive retail traders—a low-cost path to profitability in the US stock market.

Second, abandon speculative trading altogether and anchor your portfolio firmly to positive-sum assets.

What truly defines a positive-sum asset? There are only two core criteria:Consistently stable earnings, steadily growing net asset value year after year, and reliable long-term dividend payouts.In the context of the US equity market, these are mature, cash-rich industry leaders that have weathered multiple market cycles. Such assets deliver consistently solid returns on equity and compound wealth through steady dividends—without relying on valuation speculation. Holding them for five years or more allows reinvested earnings and dividends to continuously lower your effective cost basis, eventually driving it down to negligible levels. At that point, short-term valuation swings or market sentiment volatility no longer meaningfully impact your portfolio returns. There’s a repeatedly validated truth in the US market: holding high-quality assets over the long term yields profitable outcomes over 90% of the time. Most investors lose money not because the assets underperform, but because frequent buying/selling and relentless intraday trading erode all gains through negative-sum frictional costs. Moreover, consistent dividend cash flows fundamentally reshape your trading psychology. With stable annual dividend yields of 5–7% flowing into your account, you’ll no longer feel compelled to chase short-term price movements or engage in frantic trading to recoup losses—freeing yourself entirely from the speculative mindset typical of retail traders.

Third, deploy significant capital only during periods of extreme market panic.

Sir John Templeton left us an investing maxim applicable to every capital market:“Bull markets are born in pessimism, grow on skepticism, mature in optimism, and die in euphoria.”The bull-bear rotation in U.S. equities is extremely pronounced, with collective panic-driven sell-offs occurring roughly every few years: high-quality industry leaders—despite having no fundamental issues and consistently generating stable profits and cash flow year after year—are often hammered to absurdly low prices due to market sentiment or macroeconomic fears. Whether it’s pandemic-induced circuit breakers, liquidity crises, or periods of extreme market pessimism, each major selloff presents a golden entry point for acquiring quality assets. When fundamentally sound blue-chip stocks see their dividend yields pushed far above normal levels by panic selling, and when everyone is bearish and vocal about market doom, that’s precisely the best time to pick up undervalued, high-quality equity. These opportunities don’t rely on zero-sum price speculation; they’re windfalls gifted by the market’s emotional mispricing. Once sentiment recovers and valuations revert from depressed levels back to normal, combined with long-term dividend income, investors can achieve the classicDavis Double PlayRetail investors don’t need to constantly chase opportunities or watch the market tick-by-tick. Seizing just three or four such deeply oversold, high-conviction opportunities over a lifetime is enough to significantly advance your portfolio and achieve financial security. Ultimately, if U.S. retail investors want to rescue themselves and earn consistent long-term profits, they don’t need to study complex game theory or chase so-called short-term trading secrets.

The core principle boils down to one sentence:Shift from stock trading to stock holding for dividendsVoluntarily walk away from the negative-sum trading table and become a long-term shareholder in high-quality, positive-sum businesses. Restrain the urge to trade frequently and firmly hold onto core assets that reliably generate income and compound wealth over time—let compounding work for you and outperform all the speculators who endlessly churn their portfolios.

This path may seem slow and unexciting, but it’s the only reliable route for retail investors to steadily profit and achieve lasting success. On the day your portfolio begins growing steadily, you’ll finally understand:Most of the money retail investors lose in the stock market is simply the cost they pay for their own 'blind diligence and excessive tinkering.'。

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