T Nation

Where Does the Money Go?

Lets say I have 1 million dollars worth of shares in a stock such as General Motors and the market crashes like it did a few days ago where does that money go? I had 1 million dollars, but the price of the individual share fell so I lose money. Where does that money go? It may sound dumb, but I am legitimately curious.

You bought a stock for which you were willing to pay $1 million. Someone sold you that stock who was willing to take $1million.

Your million bucks is in the pocket of the guy you bought it from.

You don’t lose money until you sell the stock. If the share price goes down, that means that no one is willing to pay what you paid for the stock. If it goes up, you don’t make any money either - it just means that most people are willing to pay more than you did for the stock.

It is not a gain, or a loss until you sell.

^ What he said.

A stock, in and of itself has no value whatsoever. If you buy stock in a company, you are basically betting that the company will do well. If the company does well, more people will want to buy the same stock, which means the ones you have will go up in value. If the company does poorly, fewer people will want to buy the same stock, and the value of said stock will decrease. It’s like betting on a horse, except most of the time at least half the horses win.

[quote]rainjack wrote:

Your million bucks is in the pocket of the guy you bought it from.
[/quote]

Lol, genius! You could’ve stopped right there.

If you buy a stock you are essentially becoming a very small part owner in a company. You are buying at what you believe the company is worth per share. If everybody thinks the company will do well and make a big profit then the shares will appreciate in value because everyone will want to own part of that company, if it’s the opposite they will depreciate.

Say you bought a small personal training business for $200,000. If you ran it successfully and grew the client base to be running at full capacity making 3X the profit it was making before hand then someone will likely want to buy that business for you for much more than you bought it for. If you one day waved you dick at a client and he told all of them and they all left except for one real slutty whore and you were operating at a big loss then you might be lucky if you could sell the business for $10,000. Think of price fluctuation like that but you only own 1/10,000,000,000 of the company.

[quote]latenight_lifter wrote:
Lets say I have 1 million dollars worth of shares in a stock such as General Motors and the market crashes like it did a few days ago where does that money go? I had 1 million dollars, but the price of the individual share fell so I lose money. Where does that money go? It may sound dumb, but I am legitimately curious.[/quote]

Most people don’t buy individual stocks. They buy into investment funds and their money is moved around for them. If the stock market goes down 2% it is a reflection of the average value lost by the stocks a certain index measures (for example, DJI). If an individual stock loses value it just means you cannot expect to sell it for what it was bought. In most cases you do lose because most fund mangers will move to sell before all the value is lost.

On the other side of the coin there are those waiting for low prices so they can buy into what might be perceived as a good deal. Investors who short-sell love a stock value “crash” because they borrowed higher priced stocks which they can pay back at a later time at a lower value. Sometimes if a stock is perceived to be undervalued the issuing company uses it as an opportunity to buy back its company from shareholders.

The stock-market is a funny beast because while it is possible to have some winners amongst the losers it is also possible to have many more losers than winners – especially in a market laden with inflation, debt, and falling productivity.