When we watch the news, my husband always comments on the nature of the stock markets ups and downs (or more specifically, its downs!) He swears that all the money we are losing (and other investors are losing), has to be making someone rich. He says, “the money just can’t disappear.” So my question is, where DOES the money that we are losing go? Who gets rich from such a dismal stock market. Thank you!
It is not money that is disappearing, it is value.
They guy you bought the stock from has the money – the money you actually lost, that is. The money that shows up on paper as the value of your stock is meaningless. But the money that you paid for stock, and didn’t get back because the price fell – that’s real oney, and the guy (or guys) who owned that stock have the money now.
In general, one gets rich by selling high.
Take for example a house you have If some guy offers you $2,000,000 for it one day and you don’t take him up on the offer but later when you decide to sell the house you can only sell it for $1,000,000 where did the money go?
Yeah, but you never had the 2,000,000 to begin with. You were just offered it. Say you took the 2 mil for the house and put it in the stock market, but the next day it was only 1 mil, that’s what I’m asking. Where did the other million go? It had to have gone somewhere.
The numbers on the stock market page is not money. They are price tags of the last transaction. Unless you are a buyer or seller at that particular price, you have no gain or loss.
If you see an item in a store, until you’ve checked out, you have spent nothing. And until you hand over your cash, the store has received nothing. Reading the stock page is like window shopping.
All the money ends up in Bil Gate’s pocket. The value never changes, just sometimes Bill gets some of our dough, and other times get lots of our dough.
I think a lot of these monetary amounts that get mentioned are potential, not actual. The value of the stock does not become money until someone actually sells the stock, and someone else gives them real money for it.
Tat story of AOL-Time-Warner ‘losing’ 100 billion dollars–how much of the ‘loss’ was merely the vanishing of potential dollars that never actually existed?
AOL has to use the new accouting rules that state they must say how much they are really worth with assets, etc, which is how they found out they are only worth $55M or so.
The stock market is just paper value. As for Gates, there was a time that MS was around $120.00 per share & now is around $47.45 a share
yoyo3500, & I just round out his shares to 1B to calculate his net worth at any time, so I don’t think he is getting our dough so much anymore 
I understood that different than the stock market the commodities market is a zero-sum game. That is, all money can be accounted for (i.e. the balance sheet should zero out at the end of every day). If someone lost money then someone else made money. Is that true?
The stock quotes in the newspaper are the high, low, average, and close of the ACTUAL TRADES MADE. They are very real prices. However, just because someone else got $100 for a share of XYZ doesn’t mean that you will. As I said, the only money lost is the difference between what you paid and what you GOT paid; what you paid is still in the pocket of the guy who sold you the stock; what you MIGHT have made is vapor.
Let’s make it simple, and assume you bought the $2M of stock from a single individual. At the end of that transaction, the other person has your $2M, and you have $2M of stock. The next day, the value of the stock you have is now only $1M. The other guy still has your $2M. No money was lost, just value of the stock you hold.
Now reread that paragraph, substituting “house” for “stock”, and you will see that it isn’t all that difficult to grasp.
If you sell your stock that day, you have lost $1M. If you hold it, you have a potential loss. If, the following day, the value of the stock goes back to $2M, you haven’t lost (and never did lose) anything.
So, I repeat myself, money isn’t lost, value is.
Here’s another way of putting it:
Say you purchase 1,000 shares of stock in “U.S. Hay” at $100 per share. You are now the proud owner of 1,000 shares of stock. That’s all.
If tomorrow the value of that stock becomes $200 per share, you own $200,000 worth of stock in U.S. Hay. You DO NOT HAVE $200,000 IN CASH UNLESS YOU CHOOSE TO SELL YOUR STOCK. What you own is still 1,000 shares of stock, all that’s happened is that the value of the stock has increased.
A week from tomorrow, the market for hay collapses and shares of U.S. Hay go down to $50 per share. You STILL OWN 1,000 SHARES OF STOCK. But now it’s only worth $50,000. You have not lost ANYTHING, unless you choose to sell at that price, in which case you have lost $50,000.
It’s probably best to stay out of the volatile Hay market.
Not sure if this is a good example but…go buy a $30,000.00 car and drive it home. Put it up for sell the next day and you may only get $25,000.00 for it. Where did the money go?
:: chuckle, snort ::
I didn’t even think about that until well after I hit the send button. It’s actually a Simpsons reference… I considered using “Confederated Slave Holdings” but decided against it 
You are correct, sir.
The reason for this is simple. Participants in the commodities market don’t buy assets like participants in other markets do (e.g., shares of stock in the stock market, ears of corn in the supermarket). Rather, they obligate themselves to either deliver a certain amount of a good by a certain date or to receive delivery (and pay for) a certain amount of goods (e.g., pork bellies, gold, palladium,etc.) on a certain date (the settlement date).
To make life easier, though, participants in the commodities markets use the terminology from the stock market. Therefore, one who “buys” a contract obligates himself to buy the commodity on the settlement date, and one who sells a contract obligates himself to deliver the commodity on the settlement date. Now, almost all participants don’t actually want corn or wheat or whatever or don’t actually have it to deliver, so the contract is offset by entering into the opposite contract (e.g., I buy a contract, then later I offset it by selling a contract; I’m now obligated to both buy and sell 1,000 barrels of light sweet crude on May 31, so I essentially have no obligation).
Also, many contracts are settled each day on a cash basis, so if pork bellies go up $100 a contract, then each buyer will get $100 cash in his account for each contract, and each seller’s brokerage account will decrease by $100 per contract. Lots of fun!
“It’s probably best to stay out of the volatile Hay market.”
Yes, also the $30,000 car market as well.
Dow dropped for three years so far, each year they say it fell another $2T in value.
squid wrote:
If your car buyer believes the value of your car is $30,000, then no money was lost. If putting on (say) 20km on your car bothers all of the potential buyers out there, the perception of worth of your car has fallen to what buyers are willing to pay (e.g., “new” is better than “slightly driven”). The potential buyers base their perceptions of worth on many qualities, but it still comes down to a change in value.
Or, maybe the money leaked onto the road through tiny holes.
That is probably the best argument I have heard for getting the undercoat on the car.