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If you buy a stock for 100 dollars, and due to a series of bad results which led to price adjustments, the stock is now worth 1 dollar, you lost 99 dollars. Nob

If you buy a stock for 100 dollars, and due to a series of bad results which led to price adjustments, the stock is now worth 1 dollar, you lost 99 dollars. Nobody else picked up those 99 dollars. Asset depreciation is a fundamental concept that you should be familiar with, as it influences several aspects of your personal finance: https://www.investopedia.com/terms/d/depreciation.asp https://www.investopedia.com/terms/d/depreciation.asp

UncleEntity 3y ago
> Nobody else picked up those 99 dollars. Except the person who sold the stock for $100.
- bluepizza 3y ago
  Person A holds 1 stock, valued at 100. Person A sells 1 stock to person B. Now Person A holds 100 in cash, and 0 in assets. Person B now holds 0 in cash, and 100 in assets. Fast forward 5 years. The stock price has crashed to 1 dollar. Person A still holds 100 in cash and 0 in assets. Person B holds 0 in cash, and 1 in assets. There was no transfer of 99 dollars back from Person B to Person A. Person A's holdings were invariant because they don't own the stock anymore. The losses brunt by Person B were not transferred to anybody else. Money doesn't travel back in time.
  - mannykannot 3y ago
    > Money doesn't travel back in time. Correct - the transfer happened when you bought the stock. What you have lost is the expectation of getting it back (or at least the expectation of getting it back today.)
deleted 3y ago
[deleted]
emacsen 3y ago
Unrelated to this is the distinction between money and wealth. The challenge for a company like Weework is that it's hard to identify what wealth they generate- at least for me. In other words, what are they making (goods) or doing (services) that provides value to the world (wealth). I suppose they'd say that their core value is making it easy to rent space quickly. This is certainly providing some value, but I hardly think it's one that's heavily differentiated. I bring this up because the conflation of money and wealth is so often what gets people in trouble. Decoupling the two lets us examine what the value of a company is, at its core.
- bluepizza 3y ago
  It's simpler than that! They just need to charge more than they spend. The fundamental economics of WeWork never worked because they were a con by its founder, who used WeWork to buy buildings in his name and rent them back to WeWork, amongst other financially boneheaded decisions. WeWork was never meant to be a successful business, it was meant to enrich the founder. Post founder, WeWork was finding itself as a scalable office provider, where companies were willing to pay a premium for a flexible contract, and add or remove seats as needed. It was an interesting idea, and there were signs of growth. Then COVID happened. I'm surprised they are even still operating.
- wizofaus 3y ago
  WeWork certainly provides value to the companies that rent their offices (including the one I work for). If someone else were looking for office rental options I'd recommend WeWork on the basis of the experience I've had working within their office space over the last 8 months or so. But obviously it was massively oversold as being a lot more than an office remodeling/ maintenance/ cleaning/subletting service.
ethbr0 3y ago
In order for the stock "price" to move, somebody sold. Stocks don't reprice without transactions.
- bboreham 3y ago
  The quoted price can and does move without transactions. The last-traded price does not.
  - ethbr0 3y ago
    How would the quoted price move without transactions? (And I realize we're bleeding over into market making dynamics here)
    - bluepizza 3y ago
      Because the seller sets a lower boundary for selling, and the buyer sets an upper boundary for buying. There is no price over the counter for individual stocks. The ticker that you see is based on transaction execution, but not on the negotiated price. If there was an overnight discovery of infinite energy supplies, Exxon would wake up to a very different price than the night before, as any potential buyers would severely reduce their upper boundary. Sellers would need to continually lower their price until it finds a willing buyer.
    - bboreham 3y ago
      It’s entirely up to the entity quoting it. That could be me, for instance, putting a bid into the market because I read a hot tip on HN. Or you may prefer to imagine an automated market-making model that moves its price for Ford because it just saw a big sell-off in GM. Or consider prices at the open each day, which are set before any transactions take place.
- bluepizza 3y ago
  If there is a sufficiently impactful information, investors will reassess their valuation and pricing strategies. Company X's stock are worth 100 dollars. A scandal breaks out, revealing that their second most important product must be removed from the market immediately due to health concerns. The company will survive, as it has other products, but it is clear that their income will go down and they will spend a fortune on litigation. Suddenly Investor A wants to sell this stock, because they don't want to hold a risky asset. But who will buy it? Investor B is willing to buy this stock, and will reassess their targets, decide that this stock is now worth around 75, and only buy it at this price. Investor A has two options now: hold a risky asset, or take a loss. If they decide to take a loss, the stock is now priced at 75. If they decide to hold it, then the price might be artificially 100, but this asset is not liquid now, as nobody is willing to buy it at 100. So the price has already dropped, before any transactions happened. See also pre market trading: https://www.investopedia.com/terms/p/premarket.asp https://www.investopedia.com/terms/p/premarket.asp

UncleEntity 3y ago

> Nobody else picked up those 99 dollars. Except the person who sold the stock for $100.

bluepizza 3y ago
Person A holds 1 stock, valued at 100. Person A sells 1 stock to person B. Now Person A holds 100 in cash, and 0 in assets. Person B now holds 0 in cash, and 100 in assets. Fast forward 5 years. The stock price has crashed to 1 dollar. Person A still holds 100 in cash and 0 in assets. Person B holds 0 in cash, and 1 in assets. There was no transfer of 99 dollars back from Person B to Person A. Person A's holdings were invariant because they don't own the stock anymore. The losses brunt by Person B were not transferred to anybody else. Money doesn't travel back in time.
- mannykannot 3y ago
  > Money doesn't travel back in time. Correct - the transfer happened when you bought the stock. What you have lost is the expectation of getting it back (or at least the expectation of getting it back today.)

deleted 3y ago

[deleted]

emacsen 3y ago

Unrelated to this is the distinction between money and wealth. The challenge for a company like Weework is that it's hard to identify what wealth they generate- at least for me. In other words, what are they making (goods) or doing (services) that provides value to the world (wealth). I suppose they'd say that their core value is making it easy to rent space quickly. This is certainly providing some value, but I hardly think it's one that's heavily differentiated. I bring this up because the conflation of money and wealth is so often what gets people in trouble. Decoupling the two lets us examine what the value of a company is, at its core.

bluepizza 3y ago
It's simpler than that! They just need to charge more than they spend. The fundamental economics of WeWork never worked because they were a con by its founder, who used WeWork to buy buildings in his name and rent them back to WeWork, amongst other financially boneheaded decisions. WeWork was never meant to be a successful business, it was meant to enrich the founder. Post founder, WeWork was finding itself as a scalable office provider, where companies were willing to pay a premium for a flexible contract, and add or remove seats as needed. It was an interesting idea, and there were signs of growth. Then COVID happened. I'm surprised they are even still operating.
wizofaus 3y ago
WeWork certainly provides value to the companies that rent their offices (including the one I work for). If someone else were looking for office rental options I'd recommend WeWork on the basis of the experience I've had working within their office space over the last 8 months or so. But obviously it was massively oversold as being a lot more than an office remodeling/ maintenance/ cleaning/subletting service.

ethbr0 3y ago

In order for the stock "price" to move, somebody sold. Stocks don't reprice without transactions.

bboreham 3y ago
The quoted price can and does move without transactions. The last-traded price does not.
- ethbr0 3y ago
  How would the quoted price move without transactions? (And I realize we're bleeding over into market making dynamics here)
  - bluepizza 3y ago
    Because the seller sets a lower boundary for selling, and the buyer sets an upper boundary for buying. There is no price over the counter for individual stocks. The ticker that you see is based on transaction execution, but not on the negotiated price. If there was an overnight discovery of infinite energy supplies, Exxon would wake up to a very different price than the night before, as any potential buyers would severely reduce their upper boundary. Sellers would need to continually lower their price until it finds a willing buyer.
  - bboreham 3y ago
    It’s entirely up to the entity quoting it. That could be me, for instance, putting a bid into the market because I read a hot tip on HN. Or you may prefer to imagine an automated market-making model that moves its price for Ford because it just saw a big sell-off in GM. Or consider prices at the open each day, which are set before any transactions take place.
bluepizza 3y ago
If there is a sufficiently impactful information, investors will reassess their valuation and pricing strategies. Company X's stock are worth 100 dollars. A scandal breaks out, revealing that their second most important product must be removed from the market immediately due to health concerns. The company will survive, as it has other products, but it is clear that their income will go down and they will spend a fortune on litigation. Suddenly Investor A wants to sell this stock, because they don't want to hold a risky asset. But who will buy it? Investor B is willing to buy this stock, and will reassess their targets, decide that this stock is now worth around 75, and only buy it at this price. Investor A has two options now: hold a risky asset, or take a loss. If they decide to take a loss, the stock is now priced at 75. If they decide to hold it, then the price might be artificially 100, but this asset is not liquid now, as nobody is willing to buy it at 100. So the price has already dropped, before any transactions happened. See also pre market trading: https://www.investopedia.com/terms/p/premarket.asp https://www.investopedia.com/terms/p/premarket.asp