I swear, I am a smart person, but the stock market never made sense to me. It all feels made up. We, and everyone else, lost TONS of money yesterday and today, but where does the money go? A stock is no longer valuable but what does that mean????
I swear, I am a smart person, but the stock market never made sense to me. It all feels made up. We, and everyone else, lost TONS of money yesterday and today, but where does the money go? A stock is no longer valuable but what does that mean????
Comments
> It all feels made up.
You understand it correctly.
That “money” is made up. It’s potential sales price for sales that didn’t happen.
So if my 100 shares are selling for $5 each today, and $2 tomorrow I have “lost” $300 in value. But I never actually had that money, it doesn’t exist.
When your stocks lose value it’s not actually because money went somewhere, it’s because people are less willing to buy those stocks so their value decreases.
Like imagine you have some cool item and your buddy says “Wow I would you pay you $1000 for that.” But then the next day your buddy says “Actually it’s not looking so great now, I’d only pay you $800 for that.” That’s kinda what’s going on with the stock market.
The value of the stock market is a notional figure, derived from current purchase prices. It does not represent a tangible sum, as not every stock is sold simultaneously. Therefore, no actual money is “lost” in the sense of being transferred to another party. it is simply that the market valuation has decreased.
If a farm is burned down where does the money go
It goes nowhere. Value was destroyed. When Trump announced tariffs he damaged the economy. Those companies we built are now worth less than before we had tariffs.
It’s potential money that is lost. Like if you own a painting and it’s worth 50 million dollars, if you spill soup all over it and it’s now worth 5 bucks, you didn’t LOSE that money because you never had it in the first place.
It IS all made up.
A stock represents a tiny slice of ownership in a company. It’s worth whatever people will pay to own that fraction of said company, which in turn is based on how well they think it will do.
When something changes and it seems like the company will do better or worse, then people are willing to pay more or less for it respectively
There’s no actual “money” to go anywhere, it’s just people’s guess at how much that slice of a company is worth. As people buy and sell them in different circumstances the price they are willing to pay rises and falls.
In theory, the price of a stock is suppose to represent the performance of a company.
In reality, the price of a stock is a combination of the global psychology of the world and how they feel about that company. I price could go up and down simply based on how people feel about the stock at any given time based on perceived performance. Not always actual performance. It feels made up, because like all forms of currency…it kinda is. It’s only valuable because as a society we agree that it has value.
I own a car that I paid $10K for, but I can only sell for $5K today. Where did the other $5K go? It’s the same question in a more intuitive context.
It’s value, not actual cash money.
It’s the same as a Pokemon card: it’s worth whatever someone is willing to pay for it. There’s no actual money there, just speculation.
Imagine you buy a pencil for a dollar, you don’t use it, and then sell it the next day for fifty cents. The fifty cents effectively went to the person who sold you the pencil on the first day.
Now add one layer to that. You buy the pencil for a dollar, the next day people are buying pencils for two dollars, you think its value will be even higher than two dollars in the future, so you keep the pencil. You now own the value of a two dollar pencil, but you don’t have that in cash, you still only own one pencil. The third day people no longer want pencils and you sell it for fifty cents, effectively you still have that fifty cents to the guy you bought the pencil from on the first day, but if someone had bought a pencil on the second day, they would have given the person they purchased the pencil from a dollar fifty.
> the stock market never made sense to me. It all feels made up.
That’s because it kind of is. A stock is basically a share in a company, so there is some real world relation to it, but the value is just based on what someone is willing to pay for it, which can lead to some stocks being blown up way beyond the money the company actually makes (e.g. tesla).
> where does the money go?
nowhere. Say i sell you a stock for 100$ and tomorrow the company CEO turns out to be a nazi and the stock is now only worth 50$. Technically you lost those 50$ to me, because you bought my stock. If i hadn’t sold the stock you would still have 100$ and i would be 50$ poorer.
There is a thing called shorting, where you sell borrowed stocks at a high price, then buy them later when they are low to give them back.
The only time you lose $$ are those that bought high thinking the stock will rise but then it tanks and you end up selling low.
The stock market loses valuation. Which causes some people to invest less. Some people do lose money, because they bought stocks with borrowed money, but that’s their own circumstance. If stocks go down in value, but you hold on to them, it is likely that they will go back up in value as confidence returns to the market. Obviously there are some companies that just fail, but I’m talking about the majority of stocks that have good history of value.
Simply put it vanishes.
Shares only have value when people believe they do.
The money was never real.
The money doesn’t go anywhere, it’s the concept of value that decreases.
If you own 10 apples, and you bought them at the store for $1 each yesterday, you have $10 worth of apples. If the store starts selling apples at .50 an apple going forward, you now only own $5 worth of apples, because they’re now worth half as much.
If you sell the apples for .50 to someone, you end up where you started (having no apples) only now you have $5 less in your wallet.
its the secondary market. The broker takes a small percentage of the transaction between the buyer and the seller. (Sometimes, they take it out of the selling price by selling it for a tad bit more. People & institutions put money in and take it out.
It is made up just like money, really. It’s all made up lol. Who decided that shiny gold metal is actually valuable? But then again if we don’t use that, history shows we’ll resort to anything that works. Like tulip bulbs.
Money and the concept thereto exist simply because humans wanted to
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Into Joe Kennedy’s back pocket.
https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wall_Street_Crash
Straight to the Dorito’s pockets. Why do you think he’s nuking world wide markets?
When your car’s value go down, where does that money go? If you wait, and the price goes back up where does that money come from?
Does that analogy help? There is no money until you sell it is the answer.
People are willing to buy stocks because stocks are ownership of potential future profit. The value of a stock is the expected future profit. For instance, if a company spends fifty million dollars building a new factory, the factory isn’t worth fifty million dollars after it’s built. It’s worth the expected value of ownership of that factory. Obviously the company decided to build it because they thought that in the context of them owning it, it would be worth more than fifty million dollars. But if someone in power tries to destroy the economy for personal benefit, maybe the context has changed and now that factory is worth less than fifty million dollars. Money didn’t disappear, but value disappeared as the potential for profit evaporated.
Think of stocks just like any other object. If you bought a couch for $2000, but now you can’t get anyone to pay you more than $1500 for it, where did the money go? It didn’t go anywhere. The thing you have just isn’t worth as much as it was before.
Think of it this way. You buy a house for $200,000. 5 years later on Trulia it shows that your house is worth $600,000. Then, 1 year later Trulia shows that your house is worth $400,000. Where did the $200,000 go? Nowhere. You still own the same house. The “value” is just a snapshot of what someone is likely to pay at a very specific moment in time, that’s all. It’s the same thing with the stock market, except stocks are easier to sell, and trade between buyer and seller at exponentially faster speeds.
These very precise prices at a given moment in time wrongly give the illusion of long-term “value”.
Its basically hype. A stock has a certain price because people say it does. And when people lose faith in the stock, its price goes down because people believe in it less than before.
No money was actually lost. The perception of value is what is lost. So the hype is trimmed.
If I have a car that’s worth $20,000 and then I crash it and it’s only worth $1,000, where did my $19,000 go? The same place
warren buffet said once “I haven’t lost any money until I sell”
Stock prices are ephemeral until cashed in on. The stock remains the value you bought it at until you sell it, at which time it is now the value you sold it for. Everything else is speculative investment theory basically.
If I have a cow which I bought for 50$, and cows are currently selling for 75$, I haven’t made 25$ dollars until I sell the cow.
Paper profit/loss unless you sell.
Fugayzi, fugazi. It’s a whazy. It’s a woozie. It’s fairy dust. It doesn’t exist. It’s never landed. It is no matter. It’s not on the elemental chart. It’s not fucking real
If you’re a physics person, it’s the difference between potential and kinetic energy.
This question is so great because we are fed this thinking about “investing in the stock market” “saving for retirement by investing” “401k is like a pension but better because you own it”
All these messages treat the stock market like it’s a bank, and stocks are just another form of money.
But as other point out, that’s not what a stock is. I see people complaining that Social Security is Ponzi scheme. But, this notion that stocks always go up and you can rely on that for retirement, that feels like more of a Ponzi scheme to me.
It’s not actual money. It’s estimated value.
I got a Jose Canseco rookie card. Paid 50 cents for the pack of 10, so bought it for 5 cents. It’s really just a piece of cardboard.
He goes on a tear. Breaks records and wins the World Series. I look it up, and it’s worth $100 if I sell it! Awesome!
Comes out he’s on steroids, and will never be in the hall of fame. Since it was mass produced, everyone had one and was hanging on to it. Market floods with cards. Now if I sell it, I’ll be lucky to get $5 for it.
But all along, the only actual money that was ever used in the transaction was the 50 cents I spent on the pack. Hopefully, everyone threw the card away, and he wins the Nobel peace prize next week, and it might skyrocket to $1000.
It’s Schroeder’s money. It doesn’t actually exist until you claim it.
Stock market loses perceived value for the most part.
It doesn’t “go” anywhere. The gains are all illusory until someone buys the stock from you. You could say it was worth a trillion dollars, if no one’s paying that, it isn’t.
Think of it this way: you buy a dryer. It is expected to last you 5 years. So every year, it is 20% less valuable than the year before. That value hasn’t “gone” anywhere, it just isn’t worth what it used to be worth. That doesn’t mean it isn’t the same dryer you had a year ago.
And basically, some stuff doesn’t only go down, it goes up and down.
In a sense, it’s made up, but in a sense it isn’t. Maybe your stock is worth less today if you sell it, but SOMEBODY sold it at yesterday’s price.
This is why you shouldn’t pay attention to the stock market unless you want to buy or sell. Because for everyone who just does nothing, it’ll eventually go back up again.
The problem is that some people borrow against that made up price to buy more stocks. So suddenly they have very real debts due and they can’t sell the stock for enough to pay them. That is bad.
Look at it this way.
Your house is bought today for $200k. Somebody offers you $250k for it tomorrow. You could sell and make $50k but you decide to hold.
The house next to yours burns down along with a lot trees.
You want to sell but now someone is only offering you $150k. Where did the money go?
A house is similar to a single share of stock, its value goes up and down based on what someone is willing to pay for it but the money is not realized until it is sold. The money was never actually gained or lost as the prices go up and down.
It’s the same as if you have a used car worth $8000 and suddenly a defect is found and someone will only pay $6000 for it. The money didn’t go anywhere, the value of the object you are buying or selling changed.
It is made up…the value is determined by the number of buyers and sellers…sure you get allocated a share of earnings but the multiple that this trades is determined by the risk appetite of investors. As investors feel more risk averse, this multiple decreases leading to losses in value.
Money in the stock market is a representation of the value of the supply chain.
The “money” in the stock market is imaginary. It doesn’t exist until it’s cashed out. That’s why it can fluctuate so much on a daily basis. It’s smoke and mirrors.
If you have $10k then you have $10k. If you have stuff worth $10k then it’s estimated, based on recent sales, that you could sell it for $10k and that works pretty well if you have a small holding in a big market. However, with respect to the market as a whole it’s an illusion. If a crowd sells then they won’t get close to the estimated value as they are all competing for the same buyers.
When reports talk about the stock market rising or falling, they’re talking about the valuation at a given point in time (often, close of trading for the day), which is the most recent price of each stock times the number of shares outstanding in the market.
It’s somewhat misleading because it doesn’t mean if someone sold more shares of all the stocks they’d get the stated price, it’s just saying at that point in time, sales were made at that price point, and so we will choose to treat all shares as if they are worth that price, until another trade is made.
So, where does the money go? Well the money that was actually involved in the trades is exchanged for shares of the stock. That is, Person A who owned the stock sold it to Person B for the reported share price. Person B’s money went to Person A. What does this mean when the stock price has dropped? It means Person A at some point in the past gave money to Person C for that stock and they paid more for it then they got from Person B. Thus, the money Person A lost in the stock is money they already paid to Person C.
So basically the stock market is one big game of counting unhatched chickens?
It’s “valuation” of assets in the stock market. It’s not like money in you your savings account.
One day my share might be valued at $10. Then Trump opens his mouth and the next day the value of that share is $5.