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Loss in Stocks - Who robbed my money?
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Ever wonder where your money goes when the stock prices goes down? We rarely think about this because our mind is focus mainly on how much our loss is (as well as the sleepless nights we spent thinking about the loss hehe). Several questions come into mind. Does the company lose too? Does the money just disappear?
The stock market prices go up and down depending on several factors. I found an interesting article about how the money circulates upon buying and selling of stocks.
Let’s see how the following (fictional) story goes:
Introduction:
Three friends Joy, Juan, and Jose started investing in the stock market. They have 500 pesos each. Luckily, Globe has offered 1 share for 100 pesos (yayyy).
|
|
|
|
| Globe |
0 |
1 |
| Joy |
500 |
0 |
| Juan |
500 |
0 |
| Jose |
500 |
0 |
| Total |
1,500 |
1 |
1st transaction: Joy bought 1 share from Globe at 100 pesos.
Joy is excited to buy her first share from Globe. Joy tells her friends Juan and Jose.
|
|
|
|
| Globe |
0+100=100 |
1-1=0 |
| Joy |
500-100=400 |
0+1=1 |
| Juan |
500 |
0 |
| Jose |
500 |
0 |
| Total |
1,500 |
1 |
2nd transaction: Joy sells the 1 share to Juan for 250 pesos
Joy is lucky and sees that Globe stock prices went up to 250 pesos. She sold it to her friend Juan.
|
|
Money |
Shares |
| Globe |
100 |
0 |
| Joy |
400+250=650 |
1-1=0 |
| Juan |
500-250=250 |
0+1=1 |
| Jose |
500 |
0 |
| Total |
1,500 |
1 |
3rd transaction: Juan sells the 1 share to Jose for 50 pesos
Unfortunately, Globe stock prices went down to 50 pesos after Juan bought it. Feeling that he could lose more, he sold it at 50 pesos to Jose. Jose now has 1 share he bought at 50 pesos.
|
|
Money |
Shares |
| Globe |
100 |
0 |
| Joy |
650 |
0 |
| Juan |
250+50=300 |
1-1=0 |
| Jose |
500-50=450 |
0+1=1 |
| Total |
1,500 |
1 |
Final assessment:
Globe and Joy gained 100 and 150 pesos respectively. However, Juan and Jose lost 200 and 50 pesos respectively. A total of 250 pesos was gained by both Globe and Joy and a total also of 250 pesos was lost by both Juan and Jose. So there you go. Every loss one makes in the stock market means a gain for another some other lucky guy.
|
|
Money |
Shares |
| Globe |
Gain 100 |
Loss 1 |
| Joy |
Gain 150 |
0 |
| Juan |
Loss 200 |
0 |
| Jose |
Loss 50 |
Gain 1 |
| Total |
1,500 |
1 |
So did the Globe company lose any money while Juan and Jose lost money?! Actually no because they still held the 100 pesos they originally sold their 1 share. Globe could actually gain by buying back the 1 share at a cheaper price of 50 pesos.
So did money disappear magically?! No money actually disappears as the total money is 1,500 pesos throughout the whole story. It just moves from one person to another as we buy and sell stocks.
Hope this clears things up ^_^.
If you want to know if they are still friends after Joy gained money whereas Juan and Jose lost money, well in the end they realize that their friendship is more important (haha alright this is a corny ending I admit).
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12 comments for “Loss in Stocks - Who robbed my money?”
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Nice one! A simple presentation and I understand it now. hehehe
Thanks!
^No problem. Stock basics is important to know so you can learn advance stuff hehe. Glad you liked it.
Thanks for this article, now I have the idea how to invest in the stock market and now I know where the investor’s money goes if he loss his investment. My question is; Is it safe to invest on line?
Joel´s last blog ..Meet the three leaders of the country’s biggest corporation on "The 3rd Internet and Mobile Marketing Summit 2009"
Very intresting
Nice article, hope you can produce more investors like us thru this.
i like article too simplest pattern to learn how stock market works…thanks it gives me idea
good example akoy naliwanagan…
In other words, you cheat out other peoples money using stocks as medium (or they cheat you out of yours)?
Yes, very interesting.
I wonder if your page is still active or you are actively trading but I found you post be interesting and very educational and you are very funny!
Thanks!
Nice example. This scenario is true of any situation where money is transferred or exchanged for something else. All money and wealth is transferred to someone or given away (spent) by someone - whether you are buying a million dollars worth of stock or a pack of gum. I believe in the movie “Wall Street” there is a line about how “Money isn’t lost or made. It’s simply transferred from one perception to another.” The key to wealth is to get other people to give you their money. This is how businesses are profitable - they get people to spend their money on their product/service. Or you can invest in something that may be worth more later i.e. stocks or fine art. To get other people to give you their money for your stocks or art you will have to sell them (hopefully for more than you bought them) or enjoy dividend checks as an owner of the company.
Is citisec online better than live trading? Is it approved by and listed under PSE?
hmmm, one thing though, Jose didn’t actually lose 50 since he still owns the stock he bought for 50. Money lost doesn’t necessarily equate to money gained in the stock market since outside factors (such as company performing well) affects the change in price per share.
it’s good that people with money start to get involved in the stock market since this gives companies an opportunity to grow the money for the business and potentially improve the country’s economy.
so let’s go yuppies!