Hi David,,
A simple answer: Money doesn’t disappear, perceived value disappears…
A stock cannot be sold without somebody wanting to buy it. You cannot sell a share into thin air or into “the system”
Based on supply and demand there are always shares changing hands, so someone must buy for someone else to sell. The seller gets MONEY. The buyer gets shares of stock. So far you theory is sorta right.
Imagine that there are 1 million shares outstanding that people paid various prices for. If the stock is $20 a share on Monday, it’s $20 million in “market cap” for that company, (regardless of what people paid per share).
On Friday, if ths stock drops to $5 a share, the market cap drops to $5 million…. $15 million just disappeared from perceived value.
Often times it is in the hundreds of millions or even billions that disappears. It was only worth that on paper.
Everybody couldn’t cash out at the same time, because you wouldn’t find the buyers. You couldn’t sell 10% of homes for what people think they are worth either.
Home equity and stocks are paper “value” until actually sold. If your house was worth $500K 2 years ago and $400K today, did $100K of money disappear ? NO, but $100K of VALUE did. It STILL isn’t money until you sell it (AND get paid) Selling something on credit isn’t money either.
Real money is CASH, and that’s why cash is king.
Make sense ?
