The basis of my question is this:
If I had $100 in stocks on Mon., on Wed I had $60, and say it climbed back up by the exact same rate that it fell. So these days on Fri., do I have $100 or some thing like $90?
What I don’t get is…
Is it like Situation A: which is like it’s usually the cash value of my stocks that counts, based on the monetary value of my stocks, or based on like if I had 100 pebbles then I only have 60 pebbles, so going back up 40% would only get me to 90 pebbles by these days.
Or is it much more like Situation B: I usually have 100 pebbles but each pebble is worth much more or less depending on the day, but I usually have 100 pebbles and it all converts to cash ONLY when I decide to trade my pebble in for cash?
Or am I missing some thing and it’s much better explained by some Situation C?
February 11th, 2010 at 12:55 pm
You will have less.
Say you have $100 worth in Microsoft stock and it fell 10%. Now you have $90 worth. Then the next day it raises 10%. However, that’s 10% of the new rate, not the old rate, therefore you have $99. Then you have to account for commission if you want to trade for cash.
February 12th, 2010 at 8:53 pm
Situation C
You always have the same amount of shares (pebbles) but each share may have a different value from day to day.
If you cash in your pebbles on a day where they are each worth a lot you get that days cash equivalent of your shares.
Right now most pebbles aren’t worth what you bought them for so the best thing to do is to wait and see whether your pebbles will one day be worth more than what you paid for them. Then it would be a good idea to exchange them for a lot of new shiny pebbles that are cheap because they are new… and with any luck the company that offered the pebbles is successful and your new shiny pebbles rise in value with the companies success.
February 14th, 2010 at 8:35 am
Thats it – Or is it more like SITUATION B: I always have 100 pebbles but each pebble is worth more or less depending on the day, but I always have 100 pebbles and it all converts to cash ONLY when I decide to trade my pebble in for cash?
As long as you dont cash them in its an unrealized loss. If you cash them in its a realized loss.
February 16th, 2010 at 10:47 am
no, you did not lose anything. all you should really care about is two things. first, that you pick companies or mutual funds that will not go bankrupt. second, you only need to know how many shares you own. you can buy shares cheap now, so later when the price goes up you will have more money. ie, one share is 1 dollar today you buy 100 shares, next week it is 2 dollars so you spend the same hundred to buy 50 shares. you keep those 150 shares for 5 decades and they are worth say 20 dollars a share then. you sell them for 3,000 dollars and you are happy.
February 16th, 2010 at 2:38 pm
Jeff410 and Reena are right: with stocks, you aren’t affected by variations in the market until the day you sell, because buying a stock is like buying a pebble.
There are a few things that can change the number of shares/pebbles you have, but they aren’t variations in the price of a share/pebble. Off the top of my head, those are:
1) Splits, where every share of the stock gets split into multiple new shares (for instance, a 1:2 ratio, or 2:3 ratio)
2) Reverse splits, where every share of the stock gets combined with another share (for instance, 2:1 or 3:1).
Both of those, though, will get announced ahead of time (for instance, Yahoo! currently lists 3), and aren’t really related to what the markets as a whole are doing.