There are several ways of looking at this:
One way: It is “value,” not “money” that is lost. This is the same thing that happens if, say, you purchase concert tickets for a concert that is canceled when refunds are not given. Let’s say you purchased those tickets for $50. They were worth $50 when you bought them. They were still worth $50 right up until the moment the concert was canceled. But after the concert is canceled they are worth $0 because they are tickets for something that isn’t going to happen. Where did the money go? To whoever you paid for the tickets. Where did the “value” go? It doesn’t exist any more because the concert isn’t going to happen.
Another way of looking at it is that what you are “buying” when you buy stock in a company is you are buying future returns (profits). When you pay $50 for stock in company A, what you are saying is that you believe that company A will be profitable enough in the future so that the share of it that you got for $50 will return to you at least as much, and hopefully more, in profits than the $50 you bought it with. If the company goes out of business, your share of it isn’t going to bring you any profits because it doesn’t exist any more. Where the money went? Well, it probably (lets hope) went into buying equipment, hiring employees, purchasing raw materials, sales and marketing of the products it was producing, and all the other things that go into making a business profitable. If the company didn’t make a profit, and/or went out of business, then your HOPE (that your share of the company would bring you more profits than what you invested in it) is not realized.
Another way of looking at it: Suppose you own a 19 year old car that its in great condition. You bought it for a lot of money 19 years earlier, but right now, its value is nowhere near what you bought it for, because it is so old. However, you realize that if you keep it in great condition for another 19 years, by then it will be a collectors’ item and may well be worth even more than what you originally paid for it. So on that way of looking at it, the car used to have a high value, and it may well again in the future, but right now its value is temporarily not as high either as it used to be or as it will be again in the future. Where did the money go? Well, it went to the original seller, it went into t
** Edited because Y!A “coffee break” cut off my answer in mid-sentence… adding the part that was cut off
he maintenance and upkeep that you spent to keep it in excellent condition, etc. But its not as though you can’t recover some of those investments. You just have to wait for the value to begin to rise again before you sell.
Hope this is helpful!
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6 Comments
It doesn’t “go” anywhere unless those people sell their shares. If people sell their shares after a loss, then and only then are they left with less money from the sale. You own the shares of the stock regardless of their value, but you only lose money if you sell them at the decreased value. If you hold on to them until they regain value (assuming they eventually do), you have an opportunity to not lose money.
If the company goes bankrupt, then you truly lose as a stockholder because debtholders have senior claims to stockholders. Then your shares are truly worthless. It’s why GM’s shares are so low right now.
It doesn’t go anywhere. When you buy a share you are paying a prercieved value for that share. It’s just kind of a number on paper and technically if you don’t actually sell the stock there is no value lost…it just sits there. It’s no different than buying a car. When the value depreciates, the value ‘disappears’, it’s not like someone is taking dollar bills out of your pocket. If you are still driving it have you physically lost any money? Not really. If you sell it, you sell it for whatever the buying thinks it might be worth.
The short general answer is it goes two places:
1. If there are shorts on the other side of the trade, your loss is their gain. This is the case in high volume stocks, and in ETFs that have inverse funds (SSO / SDS, UYG / SKF, etc.)
2. If the public trust drops in that stock, then its perceived value drops, and the price drops “without opposition” and has a lower net value as a result of what created that reduced perception.
Its just gone, imagine you buy a trophy for a sports star for 20$ than they break a record now its work 100$ than they commit a crime and used roids and their record is broken in a few months and no likes them anymore, now its worth 10$. Thats kinda like stocks in a simply way…
it doesn’t go anywhere the stock is just worth less on the market…. if people just hold on it will be worth more eventually!
All that money goes to companies, which the shares are belong too….