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what you own, are the percieved future profits of said company discounted (or granted a premium) for time and risk. And to that extent, good companies more often than not are bad stocks - failing to achieve risk-adjusted returns. I believe Morean's earlier example is bang on. The pharma company had an incredible potential increase in valuable income streams. The intellectual rights to that idea increased in value, which from a balance sheet squares with LSUAlums thread; but within days those intellectual rights became useless. And to that ends, howbout is likewise correct; all you own are perceptions of value ... or nothing.… You own nothing…
Your numbers are correct. We got off on a tangent about paper losses or realized losses. From a realized number, money was neither created nor destroyed which is where alot of the conversation went to.[/quote][quote=Moraen] I thought we were talking about the loss of value as it relates to the stock market. Did I miss something?
Person A sold to person B for $2200.
Person B now has $2200 worth of stock and person A has $2200 in cash.
Person C buys stock for $800. He now has $800 worth of stock.
So A ($2200 cash) + B ($800 cash) + C (800 stock) = $3800
Except that the original amount of combined value for all of them was:
$5200
Person A ($2200 stock) Person B ($2200 cash) Person C ($800 cash).
Where is the $1400?
Oh, I KNEW I should have read more carefully.
what you own, are the percieved future profits of said company discounted (or granted a premium) for time and risk. And to that extent, good companies more often than not are bad stocks - failing to achieve risk-adjusted returns. I believe Morean's earlier example is bang on. The pharma company had an incredible potential increase in valuable income streams. The intellectual rights to that idea increased in value, which from a balance sheet squares with LSUAlums thread; but within days those intellectual rights became useless. And to that ends, howbout is likewise correct; all you own are perceptions of value ... or nothing.[/quote] You do also own something of tangible value. That is, if you own 10% of a company and it goes belly up. After all the creditors are paid you own 10% of the cash derived from the liquidation of the company. Thus if the company owns a building and that is sold, you own 10% of what is left over. That is a large reason why many investors like to know the 'book' value of a company, added to it's intagible values like goodwill, IP, etc and it's perceived earnings potential you come up with a stock price. There are many variables that are accounted for, but in the end, you down own something tangible.[quote=howboutshoeshine]… You own nothing…
What you say is true in a very FEW examples. The thousands of companies that disapeared during the TECH crash are better and there were many more of them than the 200 or so worldwide companies you speak of. Only one of the original DOW 30 companies still trade because stock prices are false. You own nothing. Last I heard, owners were more powerful than those that work for them? Give Bill Gates a call if you owm MSFT and see how much time you get.
Guys, Guys, it’s all ball bearings now…do you need to go back for a refresher course?
Bottom line: Market Cap. S&P's tanked by Shania's $2.2 Tril. That means everyone lost wealth that was holding. The winners: Shorting the way down and those that get a spread on the transaction. Why is it I'm thinking Shania sent the bait and is chuckling at the spider web of the responses?Are you quoting yourself now? Again, you do own part of the company. Your example is the best one to use here. Bill Gates, he owns a majority of the stock for Microsoft. He is NOT the CEO though, that is Steve Ballmer. So your example is perfect. Do you think they listen to Gates at Microsoft?[quote=howboutshoeshine]What you say is true in a very FEW examples. The thousands of companies that disapeared during the TECH crash are better and there were many more of them than the 200 or so worldwide companies you speak of. Only one of the original DOW 30 companies still trade because stock prices are false. You own nothing. Last I heard, owners were more powerful than those that work for them? Give Bill Gates a call if you owm MSFT and see how much time you get.[/quote]
I think it’s all about unrealized gains/losses. If you bought SPY on Jan. 1, 2008 and sold it on Dec. 31, you would’ve lost money. If you’re still holding on to that ETF today, then you’re still underwater, but you haven’t lost money yet because you still have the shares and haven’t realized your losses. However, even if you still have SPY today, you’ve already lost money in economic terms since you could’ve kept that same money in cash from Jan. 1, 2008 (opportunity cost).
Bingo! That's what I was looking for. Not every share of every company was traded all the way down. The loss was realized if you sold and locked the loss in. But depending on when you got out of the market and put the money to work somewhere else determines how much of the opportunity cost you benefited from compared to the buy and holders out there. The buy and holders have not realized a loss and the market will eventually get back to the previous levels, but what is the opportunity costs these buy and holders are loosing while they wait to get back to even. Just for the record the SPY is still down 30% from the Oct 07 highs two years ago. Oct. 9, 2007 SPY 156.48 March 9, 2009 SPY 68.11 Nov. 9, 2009 SPY 109.62I think it’s all about unrealized gains/losses. If you bought SPY on Jan. 1, 2008 and sold it on Dec. 31, you would’ve lost money. If you’re still holding on to that ETF today, then you’re still underwater, but you haven’t lost money yet because you still have the shares and haven’t realized your losses. However, even if you still have SPY today, you’ve already lost money in economic terms since you could’ve kept that same money in cash from Jan. 1, 2008 (opportunity cost).
What you are all forgetting is that the company sold the stock when it went public. The company is in effect short the stock. If the company wants to go private then it must buy back all the shares.
No money is ever destroyed. The company is always short the stock until there are no longer shares to be traded. For every buy there is a sell.
STOCKS ARE NOT MONEY.
SO WHEN A PERSON BUYS SOMETHING THAT ISN’T MONEY THE VALUE DOESN’T DISAPPEAR,
THE PERSON WHO SOLD HAS THE VALUE.
THE PERSON WHO BUYS THE NON-MONEY ASSET HASN’T ANYTHING DESPITE CURRENT PRICE QUOTES UNLESS HE CONVERTS IT TO MONEY.
TO SAY ‘WHERE DID THE MONEY GO’ IS TO NOT RECOGNIZE THE BUYER CREATED DOUBLE THE MONEY THAT HE SPENT ON THE TRANSACTION ONLY IN HIS HEAD.
HE VALUES THE ASSET HE BUYS AS WORTH THE MONEY HE PAID. THEREFORE, HE BELIEVES THAT HE SPENT MONEY BUT LOST NO MONEY.
THEREFORE,TO WONDER WHERE THE VALUE HAS GONE IS TO NOT REALIZE THAT THE BUYER OF A NON-MONETARY ASSET HAS CONCLUDED THAT NOT ONLY IS THAT ASSET MONEY BUT IT IS IN THE EXACT DENOMINATION HE PAID
THERE WAS NO MONEY THAT EVER DISAPPEARED JUST THE PERCEPTION OF THE VALUE OF A NON-MONETARY ASSET
Wow, looks like someone finally figured out how to post pictures on a forum. Good job, it only took you what? 6 months to learn that trick?
Everyone stay calm..it doesn't matter if you clients lose all of their money, the mkt averages 10 % over the past 100 years.
Question that I think kind of fits into this and I feel dumb for asking:
Cash on the sidelines... First of all I keep hearing varying amounts on this, from 3 trillion to 10 trillion. The bigger one coming from wholesalers, of course. I heard an argument to this "cash on the sidelines" concept and I for some reason my brain is not working around the it. The argument was this; if someone is sitting on $100K, and they finally decide they are ready to get back in to the market, they go out buy shares of a stock, in turn, the cash goes to whoever sold the stock. By the arguer's theory, then cash is still on the sidelines, it just changed hands. That is unless, of course, the seller immediately buys shares of another stock, but then yet again, the new seller now has the cash. Of course, the seller could be buying things, starting a business, doing all sorts of things which just put the money back into the economy. (None of this is relevant with new issues.) Does anyone have thoughts on the "cash on the sidelines" concept and what effect it will have throughout this recovery? The exact quote I have heard is that there is currently 8 trillion cash on the sidelines right now. In '02, there was just 3 trillion, and the market went up one hundred percent as just half of that went into the market. I think this is a great sales statement, but I'm not comfortable throwing out numbers and statistics that I don't have a solid grasp on.
Everyone stay calm…it doesn’t matter if you clients lose all of their money, the mkt averages 10 % over the past 100 years.
You navigate the English language well, my boy.
THEREFORE,TO WONDER WHERE THE VALUE HAS GONE IS TO NOT REALIZE THAT THE BUYER OF A NON-MONETARY ASSET HAS CONCLUDED THAT NOT ONLY IS THAT ASSET MONEY BUT IT IS IN THE EXACT DENOMINATION HE PAID
Everyone stay calm…it doesn’t matter if you clients lose all of their money, the mkt averages 10 % over the past 100 years.
The problem with trying to figure out what happens with money (where does it go, does it go anywhere, etc) is that we tend to forget that money (by money I mean cash, stock, whatever) is just an elaborate construct. It has no “value” other than what it is perceived to be.
Illustration: Wind dreams of an imaginary world where he is doing $40k gross a month. In that world there are also unicorns and, much to Windy's delight, everyone looks like Richard Simmons. Wind goes to this imaginary world when he sleeps, when he is bored in his office, etc. Wind has a labotomy, no longer dreams of this world. Where did this world go? Nowhere, it isn't "something". This is why markets act the way they do now (with increasing fashion). People that have no idea what they are doing or what they are seeing are buying and selling with percieved value. They go out and buy Pets.com stock when the company is hemmoraghing money and literally does not have any "real" value. That changes the "fundamentals" that others use to instruct their trades. So, the answer...where does the money go? The same place the Richard Simmons-laden world goes when Windy finally gets his labotomy.It isn’t really about cash - its about demand. Imagine what would happen if all of a sudden investors, with $8 Trillion, sudden WANT to buy stock? The increased demand will drive up price. Unless the company is bringing secondary offerings into the market, supply stays the same. If the buy side is suddenly exploding, the sell side will raise their asking price.
Then to get even more confusing, a lot of this money will buy stock on MARGIN - driving up prices further. (Simply stated).[quote=Wet_Blanket]It isn’t really about cash - its about demand. Imagine what would happen if all of a sudden investors, with $8 Trillion, sudden WANT to buy stock? The increased demand will drive up price. Unless the company is bringing secondary offerings into the market, supply stays the same. If the buy side is suddenly exploding, the sell side will raise their asking price.
Then to get even more confusing, a lot of this money will buy stock on MARGIN - driving up prices further. (Simply stated).[/quote] We finally agree. That's exactly why there will be another larger crash.[quote=howboutshoeshine][quote=Wet_Blanket]It isn’t really about cash - its about demand. Imagine what would happen if all of a sudden investors, with $8 Trillion, sudden WANT to buy stock? The increased demand will drive up price. Unless the company is bringing secondary offerings into the market, supply stays the same. If the buy side is suddenly exploding, the sell side will raise their asking price.
Then to get even more confusing, a lot of this money will buy stock on MARGIN - driving up prices further. (Simply stated).[/quote] We finally agree. That's exactly why there will be another larger crash.[/quote] You are stating the obvious - but your timing is off. Someday the world will end. There! I'm both a prophet and 100% correct.