Example: if I bought $100 share of ABC company and tomorrow it’s $90, I get that I would incur a $10 loss if I tried to sell it, but I don’t understand what happens to the $10 difference ABC company still has from me.
Edit: okay so in this scenario:
1. i bought the share from the issuer
2. there is a downturn and the s&p index is down by 3,000 points
The first people to hear that the market is about to drop went ahead and cashed out their $100 share back from abc, however I was not lucky and my share is now worth $90. Wouldn’t ABC company have my $10? All the companies listed on the index, they get to keep the difference of the value of what the share was yesterday vs. today. Sure, the equity part of ABC company got smaller, but they still keep the $10 difference should everyone come back and cash out their shares?
In: Other
The money doesn’t “go” anywhere.
The value of what you’re holding in your hands decreases, much like the value of your car depreciates over time.
You’re still holding “1 share”. You paid $100 for it originally. But now you can’t sell it for more than $90. So you still have your “1 share”, the company has the $100 you paid for it originally, but if you want to sell it back to them, or you want someone to take it off your hands, you’ll only get $90 back for it.
It’s like the old waiter-puzzle thing. The money hasn’t “gone” anywhere, you’re just looking at it incorrectly. The company still have your $100 from years ago. You still have your 1 share. The only thing that’s changed is that nobody will give you more than $90 for your share any more.
Latest Answers