the idea that trading adds value contains an economic fallacy that can be seen using a simple exercise described by Jack Bogle in a 2009 interview with The Motley Fool.
In this exercise, he suggests imagining that half the shares outstanding of all the stocks in the S&P 500 Index are owned by long-term investors and the other half by traders.
By definition, the long-term holders who own half the shares and do not
trade them will earn the market return. The traders on the other hand
are trading with each other because the long-term investors are not
trading with them.
As Jack concludes, “It follows as the night to the
day that the traders will lose by the amount of money paid to the
intermediaries, the croupiers in the middle [as well as to the IRS!]. It
therefore follows logically and mathematically that buying and holding
is a winner’s game and buying and trading is a loser’s game. Simple as
that. No way around it.”