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