Someone who is better than me at math might be able to figure this out but I can't. If someone bought a tulip bulb for $1 and sold it for $10, and the person who bought it for $10 sold it for $100, and the person who bought it for $100 sold it for $1000, and the person who bought it for $1000 sold it for $10,000, and the person who bought it for $10,000 sold it for $1, isn't the economy a little bit ahead?
I don't see what you're saying. It's just redistribution of wealth. One person lost $9999 and the other 4 made a combined $9999. We started with $11,111 and ended with $11,111. Nothing was created, nothing was lost.
Some people point to market cap, and say, the total market cap of securities traded on US stock markets is down $6 trillion so the American people have lost $6 trillion. There are a number of problems with that way of looking at it.
1. All the people who bought a stock at $10, watched it go to $400 and sold it at $50 are actually ahead.
2. All the people who bought it at $400 and sold it at $10 are screwed.
3. All the people who bought a stock at $10 and sold it at $400 are ecstatic.
Again I don't see your point. It's just redistribution of wealth. Some won, some lost, but the net is all that matters. The net is the difference from a certain point in time to the theoretical price if everyone got out today (at the current price). If you look at Cisco from IPO, Cisco investors are up a net of $150B, but from the high they are down a net $450B. [I'm oversimplifying here, the Cisco IPO wasn't even close to the initial $1B IPO if you factor in dilution, which has to be looked at as included in the IPO]
I do know this - taking the total loss of market cap and treating it as if that's the actual loss of money to the economy in the aggregate is just plain stupid. If 100,000 shares of stock trade at $400 does that mean that the millions of share of the same stock that never traded that day were also worth $400? Try selling them and see what happens.
The stock market is in an infinite state of transactions. How can you look at it any other way than the current price if you liquidated? |
