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9 daysIt never existed.
If you make two beautiful paintings, and sell one for $1000, then decide to sell the other, but nobody wants it for more than $500, you didn’t “lose” the $500 difference.
Maybe you even told people you had another $1000 painting, then only got $500 in cash for it, so your reported net wealth dropped by $500.
At worst, you actually paid $1000, then sold for $500, but even then, the difference didn’t disappear, you just transferred it to the original owner by overpaying, or to the new owner by undercharging if the price goes back up.
- 9 days
Indeed, if they’re talking about market capitalization then “wiped out” doesn’t make sense. It’s just simply a measure of the dollar cost of shares, much more important is liquidity and real volume.
- 9 days
It only makes sense in the scenario where someone paid the $1,000 price, and then could only sell it for $500 later. They just lost $500 for their efforts.
A lot of people though bought the other $500 painting, heard it was worth more but held on to it a bit longer to see what happens. Later they are told- no it’s still only worth $500. It’s only “opportunity cost” at that point.
Usually what happens is more akin to the market “correcting” the price estimation of shares of a company.
- bedwyr@piefed.caEnglish9 days
P/E ratio, price to earnings, is key to judging intrinsic wealth, although earnings can be a bit squishy of a metric. 15/1, 13/1, and thereabouts depending on sector is traditional. Tesla is trading at like 552 price to one earning. Other tech companies are also most overpriced but much of the market is also to a lesser degree.
- 9 days
The market is mostly irrational, there are no ways to judge intrinsic wealth in a late stage capitalist stock market where we don’t have free markets and protectionism through tariffs.
- bedwyr@piefed.caEnglish9 days
Idk about that, no perfect metric, but a company that earns 1 billion a year, and is likely to continue to do so, is worth about 15 billion in stock price. (edited to correct 1 to 15 from 15 to 1.)
Obviously tech especially is out of whack. The entire market is out of whack, partly because the last two big downturns had the government bailing them out to make more than if the market didn’t crash at all.
But the lack of enforcements of regulations or consequences, is another big factor, and there are others.
That said, I don’t think late stage capitalism even captures where we are right now. It’s an oligarchy, a partial fascist one, a police state. Plus the government is taking stock in companies now. Intel, now this Venezuela oil deal, (a joke, they can’t get any more oil to speak of, not even in the 25 years their contract is for, that’s why the oil majors declined, but that’s another story, other than the government gets to buy at production cost, and gets like 25 percent of the company.)
It’s oligarchic repression, sliding into authoritarianism. But my argument is admittedly just semantic and not well fleshed out perhaps.
But the stock market sounds like a zero sum game.
Who sold the stock off early? If everyone wanted to devest from a specific company and we all sold our stock at the same time and nobody wanted to buy it… huh
- 9 days
How is it a zero sum game if prices can just go up or down almost arbitrarily?
- 9 days
Someone bargaining to buy a melon at a market can negotiate a price with the seller. Then the next buyer may negotiate a better price. You could record that the price of melons has fallen. However, all of the melons and all of the currency in the transactions is accounted for. Nothing has been lost.
The value of a stock IS what it was previously sold for. If it sells for $100, and there are 100 shares issued, the company has a total worth of +$10,000 from stocks.
If the stock sells for 90 bucks, then the “wealth from stocks” goes down to +9,000 total since every share is now “worth” 90 dollars.
Thanks. I’m seeing two conflicting stories in my mind.
I’d the company is worth $10,000 and there are 100 shares. And if I sold 10 for $100 each the company is still worth $10,000?
But who gets to calculate when the value goes down? Is it when someone offers me $90 and I accept? Why can’t I just pretend to be two people and sell myself stock at $10 to artificially tank the price so I can buy the dip? Or do the reverse and pump the price up?
Or maybe the first 10% to sell gets the best deal and the price auto-magically goes down because of ‘market trend’ and each next 10% gets increasingly screwed until the company is worthless?
- 8 days
Stock markets like NYSE are supposed to prevent certain types of manipulation if detected. Wash trades (trading with yourself) is one of the generally illegal methods to move prices.
That second example is kinda true with stock classes and new share issuance (voting shares and non voting shares, among others). It’s absolutely possible to give different types of investors more favorable terms.
https://en.wikipedia.org/wiki/Share_class
https://en.wikipedia.org/wiki/Stock_dilution
https://en.wikipedia.org/wiki/Preferred_stockBut on open stock markets, what you have is simply the order book of bids on purchases versus bids on sales. When the two don’t meet no sales happen (no volume), when a lot of people want to buy and sell you’ll see a lot of jumps up and down as sellers go down a bit to meet buyers and buyers go up a bit to meet sellers, and this represents the volume. If sellers are more eager to sell in total then they’ll push price down as a net effect, or vice versa pushing it up for buyers competing to buy.
Current price is simply latest sale price. Total valuation is simply total shares multiplied by sale price. Yes, this isn’t accurate at all in a basic mathematical sense as it doesn’t capture nearly enough information on actual value in any sensible way.
- 9 days
Congratulations, you just figured out market manipulation! Some of that isn’t strictly legal, but since when does that affect people’s actions?
- 9 days
There don’t have to be actual sales for the price to move in an orderbook based system though, the price could collapse just from all the buy orders at the top of the range being cancelled.
You buy 10 copies of a specific collectible card for $5 each. Everybody is willing to pay $5 for each card you own, so you theoretically have $50 in the form of trading cards.
But then people want that card a lot for whatever reason. They want it so much you could sell yours for $8 each. So now, without having done anything, you have $80 in the form of trading cards.
But then people decide your cards are actually lame and don’t want to buy tgrm any more. If you were to sell them, you’d only get $1 each, so you only have $10 worth of trading cards. Thus, your cards are worth $70 less than they were, even though all the actual money is still out there and you have all the trading cards you originally bought.
To rephrase, the value of your investment fell by $70.
This is how stocks work. When the media reports that some money was wiped off the stock market, all the money still exists. It’s just that people decided some stocks are lame and not worth buying, which means the owners of those stocks can’t sell them for as much as they could have the previous day.
- 8 days
The point you’re missing is that the loss is real for the investors holding those assets.
If you bought ten cards for $5 each, you invested $50. When their market value rises to $80, you have an investment worth $80. If that value subsequently falls to $10, you’ve lost $70 in investment value. You can no longer sell those cards for what you could have sold them for yesterday.
And if you were someone who bought those ten cards at $8 each, you’ve now lost $70 of your original $80 investment. That isn’t hypothetical money. That’s money you actually spent and can no longer recover by selling your cards.
The money is not “still there”, the money transferred hands and you (or your retirement account) are holding the empty bag.
The thing is though you haven’t actually lost money or gained money until you sell the shares and until you do sell, you still have those shares so you could always get your money back if the stock goes back up. The only time you will lose money when holding stock is if the company goes out of buisiness
- 8 days
If you believe the capitalist assertion that stock always go up, sure. If you’re not close to retirement and aren’t counting on those funds anytime soon, sure.
I believe the AI circular financing bubble isn’t meaningfully going to turn a corner and become profitable enough to pay the debts already accumulated, and once it truly pops that money will never come back to the average investor trusting the financial bros to put all their eggs into that overinflated basket.
- 8 days
Functionally, to the people who shorted stocks or sold while it was still high. But more accurately, it goes nowhere; the “market value” isn’t an actual number, it’s just a shorthand for “how much all the people currently playing the stock market are willing to spend on stocks.” They count up all the shares of every stock currently issued, multiply it by the amount people are willing to pay for those shares, and that’s the market value. When it goes down, that money doesn’t “go anywhere,” because it never actually existed to begin with; it was just describing how much confidence people had in the market.
The people who short stock or who sell high are the ones who have played the game so as to benefit when that confidence drops, so they get some actual money out of the deal; but they didn’t “make” $1.8T yesterday. That’s just how much less confident investors in the American stock market are.
- 9 days
ELI5
There are 10 Charizard Pokémon cards in existence (# of outstanding stock)
Each card is worth $100 today, $1,000 total value
Tomorrow the price falls to $90, $900 total value
$100 was “wiped”
If the charizard card is worth $80, $90, $100, or $110 will continue to play out.
If it did the opposite and price of each card went to $110 then you could say $100 was “injected” into the market.
- 8 days
Also, if you do that kind of stuff with Charizard and people find out, it’s gonna be hard to get a job anywhere but the FBI.
- dihutenosa@piefed.socialEnglish9 days
Stock valuation has always seemed like play/imaginay money to me. Until I sell my stock and buy that large purchase, I treat mine like just a number.
Imagine you’re the richest person on the planet, and own 1 trillion monies in stock of Omnia Corporation. Can you buy 1 trillion ice cream cones for 1 money each? No, because you can’t sell 1T stocks without utterly devastating the stock price… But you sure can take a loan backed by this imaginary money. Boggles my mind.
I wish someone with economics background would correct my thinking.
- 9 days
I don’t have economics background and think the same way as you do.
They just create money out of thin air.
Same with money. If the power goes out the can of tuna in the cupboard suddenly is worth more dead president paper. Maybe it was worth a dollar yesterday. But 2 weeks into no power I won’t sell it to you for 5 dollars.
- kkj@lemmy.dbzer0.comEnglish9 days
The tuna in the refrigerator, on the other hand, is suddenly worth less. Where’s the consistency?
I have a bachelors in economics and your pretty close except you’ve got realize that all money is like this. If you’ve got a us greenback in your pocket and if I decide it worthless to me, and you want something from me then all you’ve got is a small piece of art.
All value is just agreements between people and money is just a method of keeping track of favours owed that we worked out thousands of years ago. In the example of a stock, all a stock is, is an agreement between the company that issues it and its holder, that the company will do you a favour (give you some money, a dividend) some time in the future, and keep doing it every time they have some extra favours to hand out.
I may decide that the promise of those future favours are worth doing a lot of favours right now or only a few.
Right now everyone who buys and sells stocks doesn’t think a lot of companies aren’t going to be able to a lot of favours in the future so the value in the stock market has gone down. But that doesn’t mean a trillion dollars has disappeared it just means that the offer of money is lower- 8 days
My simplified take is all money is commoditized promises. It works if people believe they will work. Doesn’t if they don’t.
You’re not wrong, except the part where the money becomes more real once you sell the stock. All assets are like this – if you lasso an asteroid that contains $45 umptillion of gold, you won’t be able to sell it for $45 umptillion because you’ll crash the gold market. Money has the same problem – when the money supply grows, everyone has less money per money, which we call inflation.
- 9 days
To be fair the very idea of value of money is “imaginary”. Even a bank note is nothing more than a promise.
The value of a stock is derived from the trust that someone will trade you for it. If the trust goes away, so does the value.
Similarly, the value of a bank note is derived from the trust that someone will trade you for it. If the trust in a bank (bank run) or government (scarce money supply, solvency) or economy goes away, so too will the value of money, i.e. inflation.
Even comodities and tangible goods have “imaginary” value, because these things can be under or over produced, which in turn changes how likely someone might want your good.
That being said, the degree of imagination needed to trust the value of trade varies, and stocks are definitely close to the top of the imagination tree.
- dihutenosa@piefed.socialEnglish9 days
The difference with stock being that if you have 1T monies, you can buy stuff worth 1T (after ice cream cones run out, buy a factory or switch to candy). With 1T of stock, you can’t.
- Semjeza@fedinsfw.appEnglish8 days
No, but you can take a 2T loan using the 1T stock as collateral, and buy more things with the promise you buy it back.
And you can even use the 2T loan to buy out competitors or otherwise invest in that 1T of stocks. And when it’s worth 2T borrow 5T to pay off the loan and have 3T to invest.
- bedwyr@piefed.caEnglish9 days
You don’t need a business degree to know you are correct here. Someone whom may or may not be I has one though, and you are correct.
- 8 days
Money isn’t real. It’s something imaginary we agree on.
I told my child this (about 7 yo at the time, too young probably). He said “how is it imaginary if it’s green paper?”
Honestly that’s the best follow up.
It is green paper. It’s just that it’s only something other than that if we agree on it’s value.
Furthermore, you can have fewer pieces of money, but if you have bigger numbers on the pieces, you have more.
I’m in bottle cap futures.
Mostly everyone is unhappy, but it is not the small green pieces of paper that are the problem. We’re watching symptoms of fascism, would be great to see a good old fashioned motorcade by a book warehouse
Money is just a more practical way to trade. If we stick with the good old barter system, we’d still be trading one cow for two tables.
- Aceticon@lemmy.dbzer0.comEnglish8 days
There are three massive mathematical assumptions to determine the “value” of the stock market:
- The price of a stock of a company times the number of stocks of that company is the “value” of that company
- The price of all stocks of a company is equal to the price for which a stock of the company was last traded, a simple linear extrapolation
- The “value” of a company is measured in currency units.
It seems clear to me that some of even all of those are in fact wrong and do not represent reality.
In other words, the whole thing is bullshit.
Certainly it would explain why stock markets are far more about faith and things like momentum than they are about fundamentals.
- 8 days
I mean it is an approximation, repeatedly it has been shown that if another company wants to buy a publicly listed company they usually have to pay a premium to the market value = current stock price * number of shares so if anything that can be off by a bit more or less but is generally accurate, the main exemption to this being when a company has a very low float i.e SpaceX which only has 5% of its equity publicly tradable. Your second point is not typically what industry uses, usually we would use a optimized calculation between the current active highest bid and lowest offer. Your third point is abitrary, all things in our society are “valued” in an economic sense, by currency units of your choosing. There is often a discrepancy between public good and company value, but that is how people work. Gold was more valuable than food for peasants during feudal times or in USSR so it isn’t just Capitalism that makes this happen
- Aceticon@lemmy.dbzer0.comEnglish8 days
My point is that it’s a horrible approximation, especially for things like “growth” stocks and during market bubbles.
Further, companies buying other companies don’t purchase them for the “value” of that company, they purchase them for the amount of money that those who own that company want to part with their share of the company. This is all over the place and even for the same person varies widely at different points in time - people can and do (it’s just good business sense) demand as much money for their stocks as they can get away with meaning that the amount paid is not necessarily the amount the company is worth.
As for your response to my 3rd point, I don’t think I’ve explained it correctly - my point is that the “value” of a company is often in things which aren’t easily quantified in money (or gold, or whatever currency token), something especially bad in “growth” “tech” stocks because there’s a double problem that to find a monetary expression of the value of the company you need to find a money value of “intellectual property” (which Tech companies are generally heavy on, much more so than capital assets which are far easier to value) which is notoriously hard and all over the place and, worse, find a money value for future market prospects and profitability (because they’re “growth” stocks, so their value is not on today’s market share and revenues for their products and services) which is even more full of la-la-land wishful thinking pulled-out-of-somebody’s ass valuations than intellectual property.
So my 3rd point isn’t about that it’s somehow wrong to translate the value of a company into monetary units, it’s that said conversion is another source of error with an error amount which can vary a lot between companies and be massive in some cases.
- 8 days
It’s not real. It’s just gambling for rich people. Occasionally they use it to steal from our retirement.
I think one of the most common misconceptions about the money supply is that there are a fixed amount of dollars at any time, so if there were $6 trillion yesterday, you can expect there to be $6 trillion today. But this isn’t true; the US money supply is specifically designed so that money comes into existence and vanishes out of existence all the time during the day. When you take out a mortgage, the money you get loaned didn’t exist before it was loaned to you, in the same way the $1.8 trillion that was lost in the stock market yesterday simply no longer exists.
- 8 days
The mortgage example is a little bit different. True, that money “didn’t exist” before you signed the loan (loans do increase the money supply), but it’s still “real money” inasmuch as it’s secured by the asset that is your home, and backed by the other assets that the bank holds (i.e. other people’s secured mortgages), and pays out real, actual, spendable cash, since the builders still need money to buy two-by-fours, for instance. The person who pays the mortgage probably never actually touches any of that money, but it still has at least some basis in reality. Fractional reserve banking feels kind of stupid, but it’s been around for long enough to be a plot point in It’s A Wonderful Life, more or less with no major issues (aside from the obvious one).
With the stock market (and pretty much all speculative markets), it’s different. That money exists even less than it exists for a mortgage transaction; speculative markets don’t increase the money supply the same way that bank loans do, because the money isn’t based on anything in the real world at all.
To illustrate: a stock can lose value without anything changing hands at all. If you buy a stock for a hundred real dollars on Monday and that company does something stupid on Tuesday, your share could lose half of its value even though nothing changed hands that day. If you sold that stock on Wednesday, you might get only $50 of real money back. “Where did the money go?” Nowhere. I mean, functionally, the person (or bank or whatever) from whom you bought the stock on Monday still has the other $50, but they didn’t steal it; it’s just that now, there’s nobody who wants to spend $100 to buy it from you anymore. That money isn’t secured by anything or backed by any objective source of value. It’s entirely subject to whims and vibes, which economists call “market forces” to feel better about themselves.
When people talk about “market value,” it’s those whims and vibes they’re talking about: how much people are willing to pay for shares. There are
X-million shares out there which people are willing to buy for $Yeach; multiply those two numbers and you get the total market value. So when a market “loses value,” it doesn’t mean that any actual money has gone anywhere, it means that nobody wants to spend that much to buy into the market anymore;Yhas just gotten smaller. If every bank account in the world was suddenly frozen and no money could move anywhere, the market could (and almost certainly would) still lose value.Now, in all likelihood a good chunk of money has actually gone somewhere in addition; the people who shorted the stock and who sold early while it was still worth a lot are the ones who have it now. But that’s not where it was lost, because that’s not what “market value” actually measures.
This is generally good analysis, but I think you overestimate how different legally a claim on the ongoing usage of a piece of real estate is to an ongoing share of corporate ownership and by extension profits, and underestimating how much speculation distorts real estate markets relative to the stock market.
