Who’s Losing Money in the Stock Market in this Down Time? Nobody.

See how the stock market really works

Photo by Lana Graves on Unsplash

Whenever financial markets crash: Money is burned.

And values are destroyed. And many expect that prices will soon explode again.

Yes, the stock market data and charts are currently scary.

In theory, anyone who has invested $20,000 in stocks since the beginning of the year has lost more than 16%. In numbers that’s $3,200 in losses.

But only no. Nobody has lost anything.

The money didn’t run out.

Instead, the stock lost value.

But that is something different.

If something is lost, we were careless. Often we also have the hope that we will find it again or that someone will return what we lost. This is not the case in the financial markets.

Because what happens to our money when we invest in a share, for example? We are buying someone else’s stock.

The seller can be the very company in which we want to invest. This is when the company puts its shares up for sale for the first time, in the IPO (initial public offering).

Then the founders of the company receive our money. But the seller can also be a private investor, like us, or a bank. So they have our money. And whoever owns our money doesn’t care about the price of the shares after the sale.

Of course, as shareholders, we are interested in exactly this, in the future development of prices.

We expect a price increase

The value of a stock is formed in the short term on the basis of supply and demand.

If demand is high, the price increases because the number of shares in the company is limited and the highest bidder receives the share on the stock exchange.

Thus the value increases.

If many want to sell, the stock becomes cheaper. Its value falls.

So far, one can still be persuaded that the stock will soon rise again.

But the stock market week leaves no doubt: the down cycle is just beginning.