If you buy a stock for $100 and then its price drops to $50 and you sell it, where does the missing $50 go?

Question

I've been wondering this. The buyer of the stock wouldn't necessarily see it, the company that is issuing the stocks wouldn't get it, it almost seems to disappear. But that's not possible, is it? Learned, coherent answers ONLY, please.

Answer 1

Stock prices are just like prices for goods in a store, the more you pay for the same value, the less you really have in the long run. The current buyer does not care what you pay for anything, the current buyer only cares what he/she will pay for something now. The past only matters to you.

So the missing 50 went to the party you bought it from. You gave out a 100 dollar bill to someone, someone else gave you a 50 dollar bill (figuratively of course) and the other 50 didn't go anywhere because it never existed. If you paid the 100 as part of the company's initial public offering then the 100 went to the company, but otherwise it just went to the prior owner.

Let me give you a concrete real world example.

Hotels have a fixed number of rooms, any room that isn't rented is simply lost revenue. Imagine you had a hotel with 100 rooms and business was booming and you could rent each room for 100 dollars per night. Each night you would bring in 10,000. Now imagine there is a recession and even renting your rooms at 50 dollars per night only fills 50 rooms, so now you only bring in 2,500 per night.

You didn't lose any money, the $7,500 didn't go anywhere, it stayed in the pockets of people who decided not to travel. You didn't gain any money and other people spent the money on something else.

The money isn't destroyed, it is reallocated to some other purpose.

So imagine 100 shares traded on the day you bought your shares for 100 dollars, you paid 10,000 dollars. Now imagine demand is down and the price is now 50 dollars per share and even then, there are only enough buyers to buy 50 shares, so like in the hotel case, there is only $2500 available, and you cannot even get out of all your shares. The other money didn't go anywhere, it stayed with other consumers who paid off their mortgages, or bought certificates of deposit or just went on vacation.

Answer 2

I does disappear. It is value lost, not exchanged. Remember the markets opperate on supply & demand, so the more people want it, the more it costs & the less people who want it, the less it costs.

Unlike what someone said, you dont owe it to the person you bought it from. That would mean when you sold the stock you would have to find them to give them your lost amount (which would equate to a double loss for you). Same thing when you buy gas, the price changes every week (value). So if the price goes up next week from today, you dont owe the station another $.03 per gallon. Just like they dont owe you if the price goes down. It is the actual value of the item that has changed.

In stocks, money is created & lost by demand. Something is only worth what someone else is willing to pay for it.

Answer 3

The stock market is not zero-sum. Wealth is created (and lost). It's not a closed system so it's not as if that $50 is floating around somewhere else.

Look at it this way. If you buy a run-down house for $100k and put another $50k into it before turning around and selling it for $210k it's not as if the extra $60k came out of someone else's pocket. You created wealth through your work, your risk taking and your skills in understanding the potential value and managing the process.

This is just what companies that you might invest in do, or try to do. If they fail then wealth is destroyed rather than created.

Answer 4

Basically it does disappear. You bought it for $100 and sold it for $50, so you lost $50. But the person who bought it from you for $50 won't have either a gain or a loss until they sell it, and the person who sold it to you for $100 had either a gain or a loss.

Answer 5

If you buy a stock at $100.00 then your entire $100.00 goes to the SELLER.

He had $0.00 and he now has $100.00
He is richer.

He could use his money to buy an Apple Ipod.
He could use his money to eat at McDonald's

There is not way to know what the seller will do with his money.

You used to have $100.00 but you now have $0.00

STOCKS ARE NOT MONEY.
You could have bought an Apple Ipod before but not anymore.
You could have eaten at McDonald's before but not anymore.

You now have ONE STOCK.

Let me say this again:
STOCKS ARE NOT MONEY.

If you sell at $50.00 then you sold your stock at 50% off the price you paid and you are poorer.

If you go to Sears to buy a $100.00 Nike shoes then your money is now gone.

I cannot tell you where exactly your money went after that.

However, a day later you could sell your pair of shoes to a homeless person for $50.00 and you will lose 50% of your money.

However, your original $100.00 belongs to Sears now.

It's the same thing with stocks.

You are not creating money.

If you see the entire 3 persons as the whole world then you will find this.

Before
1) Sears had $0.00
2) You had $100.00
3) Homeless person has $50.00

After
1) Sears has $100.00
2) You had $50.00
3) Homeless person has $0.00

The money is still the same money.

No new money was printed.

Answer 6

The person that you bought the stock from still has the $100.

What's missing?

Answer 7

OPM, BOB and MARVINATOR are right!

As strange as it may seem to those who got it wrong, the individual that was smart enough to sell it to you has the $100. After all, you in fact did give him/her $100.

Answer 8

When you buy stock you buy from another stockholder. THAT is who gets the other $50.

Answer 9

Since i read your question I have not stopped laughing. Thank you for your feminine logic.

When you hold shares, their market value is going up and down all the time. Your profit and loss is only notional, until you sell. It is the same as having a piece of gold in your pocket. its value is also changing daily.

Answer 10

It DOES disappear. It's called a LOSS, to you.