4 ms·

That doesn't change the fact that equity in public companies is basically equivalent to cash (aside taxation etc.)

by qwytw 4y ago

lotsofpulp 4y ago
Perhaps you mean the liquidity of shares in public companies is “basically” equivalent to the liquidity of cash. But I would disagree there too. There are big differences in liquidity for different companies’ shares, and it varies with time.
- crazygringo 4y ago
  If we're talking about liquidity in publicly traded companies, the kind average people are investing in, that doesn't matter for any practical purposes. You might as well say there are big differences in ATM fees depending on where you withdraw money, and it varies by bank. But that's not the point. These tiny details are utterly irrelevant to the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count.
  - lotsofpulp 4y ago
    >the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count. Sure, but what is also real is that nominal equity prices can go up or down at anytime, whereas the nominal amounts of cash should not. When VOO price goes down, I think of that as a very different loss than if my checking/savings account balance were to have gone down without me withdrawing from it. One should not expect nominal equity prices to be a certain number, or a certain minimum number, especially single stocks. It is paper value, as far as I am concerned.
    - crazygringo 4y ago
      > I think of that as a very different loss Well you shouldn't. Your net worth is measurably different because it's all liquid. It's a cognitive illusion if you're thinking of them any differently. And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. (The only difference is that cash fluctuations are usually slower and more gradual, and that contracts about future payments are generally denominated in currency rather than equity, but of course not always.)
      - lotsofpulp 4y ago
        > And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. On the contrary, I would suggest most people ignore their equity such as stock when considering whether or not they can afford a mortgage for the very reason of this thread title. > And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. I prefer to use the term “purchasing power” rather than “real value”, but I agree with this. >Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. Correct, which is why buy equity such as stock or broad market ETF. I think the purchasing power of the equity will be higher than cash sufficiently far into the future. But I do not see the point of worrying about decreases in equity prices in the near future long before I plan on selling. I guess there is no right or wrong, but I feel like worrying about short term changes in price is how people actually lose money by selling low and bugging high, rather than just buying and holding.
        crazygringo 4y ago
        > I would suggest most people ignore their equity such as stock So you're saying... when people make a housing purchase decision... they should ignore the value of their savings? I'm sorry but that's one of the dumbest things I've ever heard. Stocks are savings, they're investments, they're net worth, and treating them as if their value doesn't factor into your financial decisions is utterly nonsensical. > But it does not help me to pay attention to prices today or the short term. It sure does if you need to sell some stocks to finance a purchase today. Because you know when people take money to put a down payment on a mortgage? That comes from savings. And savings should be invested in a diverse set of holdings... that includes stocks. I can see you're holding stocks for the long-term. That's fine and a valid investment decision. But something might happen where you have to dip into them tomorrow. And I can guarantee you, you're going to suddenly be very concerned about a decrease in the value of your equities. And that's the whole point. They're not made-up funny money. They're value as real as cash.
        lotsofpulp 4y ago

That doesn't change the fact that equity in public companies is basically equivalent to cash (aside taxation etc.)

by qwytw 4y ago

That doesn't change the fact that equity in public companies is basically equivalent to cash (aside taxation etc.)

Perhaps you mean the liquidity of shares in public companies is “basically” equivalent to the liquidity of cash. But I would disagree there too. There are big differences in liquidity for different companies’ shares, and it varies with time.

crazygringo 4y ago
If we're talking about liquidity in publicly traded companies, the kind average people are investing in, that doesn't matter for any practical purposes. You might as well say there are big differences in ATM fees depending on where you withdraw money, and it varies by bank. But that's not the point. These tiny details are utterly irrelevant to the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count.
- lotsofpulp 4y ago
  >the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count. Sure, but what is also real is that nominal equity prices can go up or down at anytime, whereas the nominal amounts of cash should not. When VOO price goes down, I think of that as a very different loss than if my checking/savings account balance were to have gone down without me withdrawing from it. One should not expect nominal equity prices to be a certain number, or a certain minimum number, especially single stocks. It is paper value, as far as I am concerned.
  - crazygringo 4y ago
    > I think of that as a very different loss Well you shouldn't. Your net worth is measurably different because it's all liquid. It's a cognitive illusion if you're thinking of them any differently. And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. (The only difference is that cash fluctuations are usually slower and more gradual, and that contracts about future payments are generally denominated in currency rather than equity, but of course not always.)
    - lotsofpulp 4y ago
      > And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same. On the contrary, I would suggest most people ignore their equity such as stock when considering whether or not they can afford a mortgage for the very reason of this thread title. > And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. I prefer to use the term “purchasing power” rather than “real value”, but I agree with this. >Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. Correct, which is why buy equity such as stock or broad market ETF. I think the purchasing power of the equity will be higher than cash sufficiently far into the future. But I do not see the point of worrying about decreases in equity prices in the near future long before I plan on selling. I guess there is no right or wrong, but I feel like worrying about short term changes in price is how people actually lose money by selling low and bugging high, rather than just buying and holding.
      - crazygringo 4y ago
        > I would suggest most people ignore their equity such as stock So you're saying... when people make a housing purchase decision... they should ignore the value of their savings? I'm sorry but that's one of the dumbest things I've ever heard. Stocks are savings, they're investments, they're net worth, and treating them as if their value doesn't factor into your financial decisions is utterly nonsensical. > But it does not help me to pay attention to prices today or the short term. It sure does if you need to sell some stocks to finance a purchase today. Because you know when people take money to put a down payment on a mortgage? That comes from savings. And savings should be invested in a diverse set of holdings... that includes stocks. I can see you're holding stocks for the long-term. That's fine and a valid investment decision. But something might happen where you have to dip into them tomorrow. And I can guarantee you, you're going to suddenly be very concerned about a decrease in the value of your equities. And that's the whole point. They're not made-up funny money. They're value as real as cash.
        lotsofpulp 4y ago