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Technology Stocks : Intel Corporation (INTC)
INTC 43.48+8.6%Dec 2 3:59 PM EST
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To: GVTucker who wrote (167295)7/2/2002 1:05:02 PM
From: Scott Meyer  Read Replies (1) of 186894
 
Imagine that one person had all of Intel two years ago. She was worth $500 billion

But that is an oversimplification. No one bought all of Intel at the current market price. Since Intel had been going up, most owners had purchased the stock
for considerably less than the current price. If you buy Intel at $10 and it rises to $50 and then sinks to $40, no wealth has been destroyed, you've simply made a little less than you might have. Only the unfortunate who bought at $50 and sold at $40 has actually lost money.

In order to figure out how much money has actually been lost you'd need to know the history of each share. Only shares that were sold for less than they were bought for (perhaps adjusted for inflation) constitute an actual loss. Without knowing that history it would be hard to tell how much money was actually removed from the economy.

Think of the extreme case where all but 1 of the shares are not traded and the stock price is set by day traders flipping a single share back and forth until they go broke from transaction costs. You could be showing enormous paper losses but the actual loss (money removed from the economy) is tiny relative to the market cap.

-Scott
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