Where did the money actually go? Are these small startups or individuals that have gone bankrupt that totalled this amount ?
In: Economics
it’s “paper losses”
i bought 1 share of XXX at 10/share
last week xxx was worth 13……my total value is 13
this week xxx is worth 11….my value is 11 = WIPED OUT
It didn’t “go” anywhere. The only way the “loss” is realized is if you actually “sell” the stock. As a stockholder, you need to decide if you ride it out, hoping for a rebound, or bailing out and taking your losses.
Stock price is a valuation of the worth of a company and of the expected ability to earn money in the future. If investors sell stocks because they think it might earn less in the future the prices fall. The 2.9 trillions are a reflection of how much expectations went down.
I have five Pokémon cards. I sell one to a very passionate collector a card for $1000.
What value does my remaining collection have?
Some would say 4* 1000=$4000. This is kind of what the stock market valuation means. Take the last transaction and assume all the stock shares have the same value.
After some time, a new Pokémon show comes on and my Pikachu cards are useless. Everyone wants Mewtwo cards. What value do my remaining collection have now? Well, it’s $0.
Where did my money go? Nowhere, because it was never real, it was just potential.
Stocks do not just crash to zero in real life, but they can come down in value. One reason why that happens is that people start selling shares and take their money elsewhere. Maybe they want to buy a new car or maybe they want to buy these new high yield bonds offered by the treasury. In that situation you can say that some money invested in the stock market has been taken out and it went somewhere else, and one of the reasons why stock prices go lower if the Treasury interest rate goes higher.
The actual money they spent went to whoever they bought the stocks from, the value of the stock just decreased like buying a new car will cost more than the amount you make selling it when it’s old.
Say you have 10 apples. Some guy is willing to pay 10 USD per apple. You therefore, on paper, have 10×10 = 100 USD worth of apples.
Now, for some reason, no one wants to buy your apples for 10 USD per apple, but only 5 USD per apple. You therefore, on paper, have 10×5 = 50 USD worth of apples.
No money was exchanged or lost, your apples are just worth less now.
The same principles apply to stocks.
The value of something is hypothetical until it’s sold. Right now, I own a house. The value of it has fluctuated over the twenty years I’ve owned it. That means my net worth has changed. But when my house was worth $900k, there was no material difference then when it was worth $700k.
With stocks, it’s even more volatile. If you sold right at closing, you might have a realized loss, meaning you sold the stock for less than you bought it. But if you still own it, you have an unrealized loss. The value could still change. But it’s all super fake. The value is based on the last trade. If someone sells one share at a low price, every other share is valued at that price.
The real question is really, where did it come from in the first place. Stock market is based on perception and expectations. That full 2.9T has never been put in either.
Went to people’s cash holdings. You sell stocks and turn them into cash. So in reality nothing is “lost”.
Nowhere, it never existed in the first place. It’s a complete fiction.
The only true value a stock ever has is the price at which it is transacted. If you buy it for $100, and sell it for $90, even if the price went up to $500, it was still only ever actually worth $90.
This is part of why valuing someone’s “wealth” based on the day’s stock prices is a pointless exercise.
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