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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (6074)	7/19/2001 10:57:54 PM
From: Mark Adams	Read Replies (1) \| Respond to of 74559

Nevertheless, the question is, when the market crashed, was wealth destroyed? Taking the last first, does it matter? If people think their networth took a hit, they may modify their behavior accordingly. If this occurs, then regardless of the loss being real or phantom, it has an impact on the real economy. Actually, this question brings up something that I probably should have said in the prior post- that the whole idea that the Nasdaq 'crashed' irks me. If anything, it returned to trend. When you consider the blowoff a blowoff and the current price in trend- you can't say we haven't suffered the worse bear market in xx years any longer. In fact, we've barely suffered a correction. Dow down ~10%, S&P barely down 19%, nasdaq mabye off 15% of pre 00 trend. I'm just tossing out numbers without doing the calcs, to illustrate that the media spin we hear is a farce from my point of view. That said, I agree with Maurice in that it's possible that the future is bright- and there is light at the end of the tunnel. Oh- maybe you mean the crash of 29'. Hard for me to comment on that- I defer to you as you've done much more study of the period and issues then. Does illiquid wealth make you feel and act like you're rich with liquid wealth? Stock illiquid? Not in recent memory- now real estate- that's difficult to turn. As are motorhomes, boats, leaf blowers et al. If stocks become illiquid- then I'll have some wounds to nurse <g> Depends on how good you are at objective thinking. Some very advanced individuals probably are able to rise above it, but I guess most can't. I struggle with it personally. Did I make $200 when I sold those shares today for a profit, or loose 1k when the shares I still hold dropped in light of microsoft's forward guidance? The way I manage this is to mark to market daily, and look at performance periodically- ie yearly for myself. I do track year to date, but try not to let it impact me emotionally. I don't mean by saying as much that I consider myself an icon of rational thought by any means. In fact, I had to declare myself a contrary indicator and do everything opposite of what I thought correct. That was shortly before I realized that rational thinking could prevent stock market gains. <g>

To: Ilaine who wrote (6074)	7/20/2001 2:49:48 AM
From: Cogito Ergo Sum	Read Replies (3) \| Respond to of 74559

CB, I'm so confused. *Nevertheless, the question is, when the market crashed, was wealth destroyed?* Well call me Homer but I don't get it. In fact, the easiest way for me to think about it is to think of one share of stock, or one block of stock. Mr. A buys stock XYZ at the IPO for $5. Later he sells it to Ms. B for $100. The stock then goes to $200, but Ms. B, unfortunately, holds on while the stock goes back to $5 and then sells it to Mr. C for $5. Ms. B lost money on the deal, but do we say her $200 paper value was destroyed? Objectively speaking, her money didn't go to money heaven, she paid $100 to Mr. A and the $200 never existed The 5$ and 100$ already existed as 'wealth' represented by the asset 'money'. Wasn't the 100$ of the 200$ 'wealth' that was 'created' by an asset, the share, appreciating in value, which in turn could be used as collateral ie to by a new Platinum watch :o) or a 9$US 'Rolex' in the Beijing market LOL, EVEN if such a loan was never made as in Jays example. Ms B's Balance Sheet (pro forma ha-ha) now shows an asset of 200$ and the change in position would be reflected by a Profit and Loss statement showing an investment gain of 100$ ????? Questions Questions. Making Money 'Out of Nothing At All' --- I hope Air Supply forgives the poetic license. The 5$ and 100$ were simply exchanged for another asset. 100$ of the 200$ share value is an exchange for the share asset which hence appreciated to 200$ market value increasing Ms B's wealth by 100$ (so he didn't need savings :o). The company goes bankrupt, is de-listed, and now the 200$ share is worthless. Now no one wants Ms B's share including Ms B. The day the company went bankrupt Ms B's portfolio decreased by 200$ and hence 100$ of wealth vanished .... or not ? 'Does illiquid wealth make you feel and act like you're rich with liquid wealth?' My house will be paid in a few years. This causes the bank to offer me large lines of credit on a regular basis. God knows what could happen if I weaken one day and take too much :o) Send me someone smart with small words, I'm so confused. regards Kastel