An example might be helpful.
In the 1800s, aluminum was more valuable than gold. It was very difficult to produce and it was valued very highly. Then someone figured out a way to extract it from the ore much more efficiently, making it much easier to obtain and much more common. If you had owned a $500 chunk of aluminum, it had that value because of its rarity; other people recognized it as being more valuable because it was more difficult to get. When it became more common, its value could have dropped to $50 (I don’t know how much the price actually dropped, but it was a lot).
Where did the $450 go? Nowhere, because monetary value is based on how much people are willing to pay, and unlike a physical substance it is not necessarily conserved; it can be created or destroyed. This is also how stocks work.
You can also create monetary value by transforming materials into a worked product (think knitting a sweater) or destroying something that took work to make (burning that same sweater). Unlike the stock market though, the price of physical goods is often based on their usefulness rather than speculation, so it tends to be more stable.
An elongated muskrat made off with it
Cotton eye Joe.
shredder. for “security”
It’s not real. It’s just gambling for rich people. Occasionally they use it to steal from our retirement.
Agreed. It wasn’t real when it was there and it isn’t real now that it isn’t.
You’re like a top poster of c/stocks, shouldn’t you of all people know?
It didn’t go anywhere, because it was never real. Market cap is not the same as cash. The fact that Apple stock multiplied by its price is trillion, doesn’t mean you can sell trillion worth of apple stock and get trillion dollars in exchange. At that point price starts to respond to your transaction
because it was never real. Market cap is not the same as cash
btw cash is no more real than company shares. both are paper and numbers in a database.
Are we going down the gold standard discussion path here?
Gold standard is just moving the arbitrary holder of value down the line.
Shiny rock also has no intrinsic value
nowhere, the total amount of money in the world is zero. one man’s dollar is another man’s debt. if somebody loses money, somebody else loses debt, so the net sum is still zero.
Ehh, this is not a good way to think about it.
It’s more like money borrows value from the future.
The total amount of money is not zero. Gold, for instance, is real money.
But if course debt pseudo money dwarfs it.
It’s on paper. It never existed to begin with. Just like saying the rock in a ditch I found is worth 200 million dollars. Then, when I couldn’t sell it, I revalued it at only 100 million dollars. So, the extra 100 million didn’t go anywhere. “Value” is a truly subjective thing which is encompassed by the old phrase “One man’s trash is another man’s treasure”.
Damn you got a $100m rock? I’ll give you $20 for it.
You just crashed the entire stone futures market.
I’ve got a rock with gold paint on the outside, worth $500,000,000. Could I interest you in buying it for $30, instead of the lame dull rock that other guy has ?
It only ends up being really “there” if the stake- and stockholders withdraw their shares and cash out. It’s all paper valuations.
Many billionaires are actually what is known as paper tigers in that their wealth assets aren’t real, (as in real estate) because the “wealth” is based on numbers on balance sheets and little else.
I think it’s absurd the argument gets made that rich people aren’t rich because their assets aren’t real like cash, meanwhile they leverage those assets into loans that are absolutley real and tax-free.
The value is real. The absurdity needs to stop. You can’t say “tax the rich” out of one side of your mouth and then turn around and say “their wealth isn’t real” out of the other. This manipulation of terminolgy to obfuscate how wealth and assets work is pushed by the wealthy themselves to avoid anything that might increase their chances of being taxed. Seriously, if they came out and said “I’m rich as fuck thanks to my assets that I leverage into tax free loans!” How long do you think they’d last? Instead we argue over how “real” things are and say things like “The rich don’t actually have a lot of money…”
Oh, you’ll get no disagreement from me on that.
If the stock valuation is enough that it can be leveraged to get loans that can be paid off with the accrued gains ON said value, yeah, it needs to be taxed as if it is earned income.
Just reading on how Elon Musk secured the capital to buy Twitter brought that one home.
The angle I was going for isn’t that they’ve poor, it’s that they are locked into a system that means they don’t use or need liquid capital - like you or I do - to get what they want.
Given that when one has billions, the banks charge YOU to hold it, this is why the private equity groups have become so pernicious.
All that untaxed wealth with nowhere to go, so it becomes a powertool for real estate investments to leverage more money out of the working and middle classes or to buy out publicly traded businesses and run them into the dirt.
We’re back to the 1980’s again, an echo of the Michael Milliken/Ivan Boesky scandals - only this time the targets are wildly larger and hitting main street.
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I think it’s absurd the argument gets made that rich people aren’t rich because their assets aren’t real like cash, meanwhile they leverage those assets into loans that are absolutley real and tax-free.
The value is real. The absurdity needs to stop. You can’t say “tax the rich” out of one side of your mouth and then turn around and say “their wealth isn’t real” out of the other. This manipulation of terminolgy to obfuscate how wealth and assets work is pushed by the wealthy themselves to avoid anything that might increase their chances of being taxed. Seriously, if they came out and said “I’m rich as fuck thanks to my assets that I leverage into tax free loans!” How long do you think they’d last? Instead we argue over how “real” things are and say things like “The rich don’t actually have a lot of money…”
Yes, it’s something a lot of people don’t seem to understand. The “value” of a company is it’s stock price multiplied by all the shares and the stock price is pretty much just the last price someone was willing to buy a share at.
If everyone goes and sells all of their Tesla and SpaceX stock and nobody ever buys any again, Elon Musk might not even be a billionaire anymore.
Musk would definitely still be a billionaire.
He sold $1.2 Billion in SpaceX stock just 4 months ago. He sold $22.9 Billion in Tesla stock in 2022, partly to fund buying twitter.
He’s 100% diversified some of that at the very least, even if he’s just parked some of it in the S&P and bonds. He also owns a couple hundred million in real estate.
He wouldn’t be worth over $800 Billion, but he’d absolutely have at least $1 Billion.
Nobody even HAS to sell their shares, the second part is what does all the lifting here: “and nobody ever buys the shares again”.
If overnight, everyone just said “I have no interest in buying at any price” that’s the end of it. The shares are now worthless.
Every seller needs a buyer. If “everyone sold their shares”, all that happened is the share owners changed.
God, wouldn’t that be a dream!
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.
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
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.
A stock is a part of a company. You still have have that part.
A stock is a piece of paper supposedly representing part of a company. You still have the paper.
There’s nothing “supposedly” about it. It does represent a part of the ownership. If you own all the pieces of paper then you own the company.
However much you paid for it and how much it’s worth are completely different stories, but the stock is indeed the ownership.
It’s literally hypothetical money
I still scroll through Reddit through redlib and it’s wild how often I see reposts from Reddit making its way word for word to Lemmy.
You know what the bots think, what about people?
No stupid questions is the worst run community in all of lemmy. That place is a cancer and should be burnt with fire.
North Korea.
High binance.
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.
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
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.
It 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.
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.
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.
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.
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.
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
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?
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.
Congratulations, you just figured out market manipulation! Some of that isn’t strictly legal, but since when does that affect people’s actions?
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.
No, that’s the “price” of a stock. Price and value are two different things.
How is it a zero sum game if prices can just go up or down almost arbitrarily?
Because the main way money moves in and out is by people buying in and cashing out. If no company injected more (by dividends and stock buy backs) and no company took money out (by IPOs, funding rounds or stock options), it would just be a box people would put money in and get money out.
ln that case it would be a zero sum game, because every dollar taken out by someone was put in by someone else, but because there is a flimsy connection to companies creating/extracting value in the real world it is not.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.
Sure, but there’s nothing material actually backing the stocks.
