Where did the money actually go? Are these small startups or individuals that have gone bankrupt that totalled this amount ?
In: Economics
It’s just market value of the combined stock of the companies in the market. I buy a new car for $50,000. A few years later the car is probably worth $30,000. Where did the other $20,000 go?
When a lot of people believe that your worth a lot of money, they can inflate your value. Say you decided you wanted to to take a $18,000 loan against your self value when it was worth $100,000. Banks would be like “Oh heck ya, we know you’re gonna pay that back cause everyone believes you are worth way more than that!” But then you wrote something on X and no one liked it, and your value dropped to 1,000. Do you think a bank would still give you a $18,000 loan if they knew you were only worth $1,000? Probably not because they would then say “If I give you $18,000 I’ll never get that back with interest because you are only worth $1,000. I would lose money on you”
In truth, it’s about perception that someone else can “Bet” that they will make money off you. If you’re value is diminished, it means the existing loans or stocks or positions will pay out less. So people who put their confidence in You is wiped out, along with their potential profits.
The losses you are asking about are “market losses”. That means that if you added up the difference in price of ALL stocks across all US stock exchanges from the day before (or the time frame mentioned) there would be a loss in value of 2.9 trillion dollars.
A few stocks may have gone up and those are counted in the math too but the total amount in aggregate has gone down.
These calculations have nothing to do with anyone buying or selling the various stocks on the days in question. That means that most investors haven’t actually lost money because they have not sold their shares. And maybe they bought the shares years ago when the stock was much lower, so they wouldn’t have lost money even if they did sell.
Consider that the markets have been performing well in the last couple of years and have increased in value by many more trillions of dollars than that scary sounding 2.9 trillion.
The pretend value assigned to the shares by what people were prepared to pay for them (often in complete disregard for how much profit the company makes, etc.) dropped. Thus though the value was lost (i.e. if you had $1000 of shares, they’re now worth $0), the value was basically made-up in the first place anyway. It’s like a designer name going out of fashion and no longer being worth the $10,000 you paid for their handbag.
There are instances of tiny companies in the world that were valued at more than the worth of their ENTIRE GLOBAL INDUSTRY including all their centuries-old competitors despite never having made a product or a profit. At that point, someone, somewhere was willing to pay people that amount to get hold of their shares in that company… but they weren’t actually “worth” that amount.
Losses in the stock market are almost entirely made up of the PURPORTED value of companies suddenly dropping – hence “panic in the market” and so on. A billion-dollar company can be worth nothing tomorrow because of such things… something happens, everything holding the shares thinks they are about to lose money, so they sell off the shares. Other people see that, panic also, do the same, and before you know it the shares are worthless and nobody wants to take them off your hands for any price.
Share values are like art values. Someone tells you that a painting is “worth” $3m. Is it? Is it really? Why? The answer almost always is “because someone once paid $3m for it”. Or more likely “A painting like that sold for $2m recently but experts didn’t consider it ‘as good’ as this one”. It’s a made-up number. But real money changes hand, real losses happen, and there is SUPPOSED to be a real basis on those numbers (e.g. profit, company perception, the future of that particular company, or that particular market, hedging bets that THEY will be the first company to get a spaceship to Mars, and so on).
Fact is those trillions were made up. They didn’t really exist. They weren’t based on reality at all. But around the globe people did actually lose those trillions. In the same way that rare painting might be “worth” millions… until someone discovers it’s a fake, or it not really by that artist (but is a legitimate painting), or that it’s suddenly NOT the first Picasso that showed off his new style of art because another one was discovered, etc. So someone probably did pay millions for it. And now it’s not worth millions any more. The money didn’t “go” anywhere. The guy who owns the painting bought it decades ago, and that money is long gone already. But the supposed value of what he is now holding has become worthless. So he’s “millions” out of pocket. But nothing, actually, has changed.
My Dad always told me that if you buy stocks, you can’t loose money…………………………………until you sell it.
It went to paper heaven. In reality the value did for stocks and the stock market is the estimated value similar to the appraised value of a house. It is what people think it is worth. The actual value isn’t set till the stock is sold. So with all the uncertainty around the economy the estimated value of multiple stocks went down a total of roughly 2.9 trillion. And if you looked into more detail you will probably find several groups and people bought those stocks at the discounted rate fully expecting the estimated value to go back up and make even more money when they again sell them in the future.
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.
It never existed. Rich assholes love to pay for fake news articles to lament how much imaginary money they could have made, and so therefore they lost it and it’s all poor people’s fault.
This is the whole stock market. It’s fake and made up so that a class of people who don’t want to talk to you can be rich for generations without working. (See: welfare.)
Value does not equal real money. Let’s say last year I bought two paintings, each for 1000 dollars. And today both painting are valued at 10,000 dollars each. I don’t have 20,000 dollars,only two painting valued at $20k I decide to sell one painting for $10k. Now let’s say that tomorrow the painter goes on Twitter and says Hitler was awesome. Suddenly the value of the painting will drop at 1 dollar. Now in an instant both me and the buyer of that one painting, we both lost 10,000 dollars each. The seller lost real money because he paid $10k for something that now is worth $1. But I too have lost $10k from the market’s perspective because I’m left with the second painting,suddenly also without any value. The painting market lost 20,000 dollars.
It wasnt there to begin with! The “market” is nothing more then an emotional manifestation of what people think something is worth, wrapped in a massive gambling engine (day trading, options).
So ELI5… You have a widget that you and 3 of your biddies put in $25 (total value is $100). Now say one of your friends decides to sell his portion to his friend for $30. The value of this widget just went to $120 (30×4) just because that friend was willing to buy that 25% share for $30. Now say you sold your share for $20 to your neighbor… now the value of that item is $80 ($40 loss in value). Now in reality there are hundreds of millions of shares per companies and thousands of buy/sell transactions a day. So 1 bad day of trading can “loose” $2.9 trillion.
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