No Stupid Questions

It's not real. It's just gambling for rich people. Occasionally they use it to steal from our retirement.

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.

Cotton eye Joe.

It didn't go anywhere, that money was "unrealized". It's quite literally just what people think the shares are worth and a dollar amount associated with what people agree to pay for owning it.

Imagine if I own a priceless antique. I can value it myself at $1,000,000,000. That doesn't make me a billionaire, except maybe on paper or insurance documents perhaps. It also doesn't mean that people are out there buying billion dollar antiques from me, that's just what I think it's worth, although I'd be unlikely to sell it if someone wasn't going to pay me at least close to what I thought it was worth.

If I get the antique appraised and they tell me that, actually, it's only worth about $100 fair market value, then $999,999,900 was just wiped out. But the rest of that cash valuation isn't floating around in the ether somewhere, the true value of the item simply did not match my own valuation, and the antique market shifted to correct for my gross overvaluation.

That's essentially what happened yesterday.

An elongated muskrat made off with it

shredder. for "security"

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.

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.

It was never there. It was just dreams and imagination.

Same place it came from.

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.

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.

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.

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".

You're like a top poster of c/stocks, shouldn't you of all people know?

Monopoly money is real and exists. That $1.8 trillion never did.

Imaginary money when people who imagined it find out is imaginary:

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

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.

I have it

Imagine if I had a collectible Lex Luthor action figure which you really wanted - you would be willing to pay me $100 for it. Then you stopped thinking that superhero stuff was cool and didn't want the action figure anymore for more than $10. What has changed about the world is that I no longer have the option to get the $90 difference from you by selling the action figure, but only because you would keep the $90. No money went anywhere. However, market value was reduced. If my action figure and your money were all that existed in the world, then the world would no longer be a place with $200 of value. It would now only have $110 of value, and in that sense it would be a worse place to the extent that market value corresponds to happiness or abstract utility.

Wealth is not a conserved quantity. You can reduce my wealth just by wanting what I have less, even if afterwards we both have exactly what we had before.