what does it mean by $2.9 trillion wiped away due to losses in Stock market. Where did it go?

Question

Where did the money actually go? Are these small startups or individuals that have gone bankrupt that totalled this amount ?

In: Economics

Answer 1

Wow. There are a lot of bad posts here with bad explanations from people that don’t really understand what market value means.

The 2.9 Trillion loss is not a “realized” loss. That number has nothing to do with any actual buying or selling of stock. It is simply the total difference in price of all stocks across all stock markets from one day to the next. Most stock declined in value based on the asking price as listed on stock exchanges over one 24 hour period.

But…people certainly were selling more stock than buying which is the prime reason the prices declined. Think of stock prices as an auction where many people are bidding in real time to buy and to sell the stock. When more people want to sell, and are willing to accept lower prices, then that stock price moves downwards. This is what was happening on Friday.

But that doesn’t mean that the total losses for people selling stock on Friday was 2.9 Trillion! In fact, many people still made money because they bought the stock when it was much lower priced months or even years ago. On the other hand, if you had bought some stock on Thursday for $30 a share and sold it on Friday after it dropped $5 then you would have lost money obviously.

The media loves quoting total market losses because the number is huge and scary. But just consider that the market has had many up days where it increased by a few hundred billion or even a trillion or so in the last couple of years.

In percentage terms this down day isn’t really that bad on a historical basis. OTOH, this could be the beginning of a legitimate bear market. Which is in many ways overdue. The markets have been on a run for quite some time and corrections are healthy. Always remember that you haven’t actually lost money on a stock/etf/mutual fund until you sell it at a loss. If you are a buy and hold investor or just looking at your 401(k) there is little reason to do anything.