Comments on: Money Heaven http://dummyspots.com/2006/07/money-heaven/ Stocks, Options, Currencies and One Big Dummy Sun, 12 Oct 2008 10:38:02 +0000 http://wordpress.org/?v=2.2.1 By: Will http://dummyspots.com/2006/07/money-heaven/#comment-26 Will Sun, 13 Aug 2006 21:49:19 +0000 http://dummyspots.com/2006/07/money-heaven/#comment-26 Richard- thanks for the comment. I was mainly poking fun at the (mis)perception that folks often have (and I myself had at one point) that if they <em>lost</em> money in the stock market, someone else must have <em>made</em> money (the old "for every winner there's a loser" saw), or else it must have vanished into thin air. As the referenced article demonstrates (as does your example), it's not money that disappears, it's <em>value</em>. Simple enough in everyday examples, but sometimes more obscure for thick skulls like mine when dealing with as many variables as the equity market introduces. As for "just pieces of paper," that's a bit of a slippery slope. Our currency notes are similarly just pieces of paper, and are only guaranteed as legal to <em>offer</em> for payment. No law requires that they be accepted. Since our currency's value is purely based on faith, its value is subject to a catastrophic decline should that faith be at all tested. Enter hyperinflation. Thus there exists a scenario where you may want to trade your dollars for a chair, but it turns out no one wants the dollars! Cheers! Richard- thanks for the comment. I was mainly poking fun at the (mis)perception that folks often have (and I myself had at one point) that if they lost money in the stock market, someone else must have made money (the old “for every winner there’s a loser” saw), or else it must have vanished into thin air.

As the referenced article demonstrates (as does your example), it’s not money that disappears, it’s value. Simple enough in everyday examples, but sometimes more obscure for thick skulls like mine when dealing with as many variables as the equity market introduces.

As for “just pieces of paper,” that’s a bit of a slippery slope. Our currency notes are similarly just pieces of paper, and are only guaranteed as legal to offer for payment. No law requires that they be accepted. Since our currency’s value is purely based on faith, its value is subject to a catastrophic decline should that faith be at all tested. Enter hyperinflation. Thus there exists a scenario where you may want to trade your dollars for a chair, but it turns out no one wants the dollars!

Cheers!

]]> By: Richard http://dummyspots.com/2006/07/money-heaven/#comment-23 Richard Thu, 10 Aug 2006 21:30:00 +0000 http://dummyspots.com/2006/07/money-heaven/#comment-23 Say I spot a chair for sale at $20, and I think it's worth more than that. So, I buy it and try to sell it for a profit. But, it turns out I was wrong, and no one wants the chair. So, I end up selling it for only $15. Do I then ask, "where did the other $5 go?" Of course I don't. Obviously, all $20 original dollars went to whoever sold me the chair. Obviously, all $15 dollars I have now came from whoever bought the chair from me. Maybe I oversimplify things, but to me, stocks are no different. People that wonder where the money goes are confusing stocks with money, aren't they? In fact, stocks are not money. They are just pieces of paper. Say I spot a chair for sale at $20, and I think it’s worth more than that. So, I buy it and try to sell it for a profit. But, it turns out I was wrong, and no one wants the chair. So, I end up selling it for only $15.

Do I then ask, “where did the other $5 go?” Of course I don’t. Obviously, all $20 original dollars went to whoever sold me the chair. Obviously, all $15 dollars I have now came from whoever bought the chair from me.

Maybe I oversimplify things, but to me, stocks are no different. People that wonder where the money goes are confusing stocks with money, aren’t they? In fact, stocks are not money. They are just pieces of paper.

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