Investing

Preschool Question about the value of a stock investment

  • Last Updated:
  • Sep 1st, 2020 9:58 am
[OP]
Newbie
Jun 2, 2018
3 posts
1 upvote

Preschool Question about the value of a stock investment

If I buy a stock at $10 per share and one day the price goes down to $5 per share, does that mean I've lost all my money? Do I owe someone money now? How much money do I have if I sell at that price? If the price goes up to $15 per share, do I regain my money?
5 replies
Deal Addict
Nov 9, 2013
3946 posts
3644 upvotes
Edmonton, AB
Imagine you want to buy one share in Disney. Imagine that share is a piece of paper, that someone gives you, in exchange for you giving them a $10 bill. You then put that paper in a safe.

Tomorrow, you want to sell the paper to someone else, and so you take it out of your safe, but you can only find a buyer that will pay $5 for it. So you can either a) say no thank you, and put it back in your safe or b) sell it for $5. They would then hand you a $5 bill, and you're down $5.

Let's say instead you say no thank you, and put it back in your safe. Then, in a few days, you find a buyer who will give you $15 for the paper. You give the paper to them, and they give you a $10 dollar and a $5 bill - you're up $5.

This is exactly what you do on the stock market. It's just that it's nowadays digital (so no paper is involved), and you don't necessarily know the person on the other side.
Keep calm and go long
[OP]
Newbie
Jun 2, 2018
3 posts
1 upvote
Thank you. This is a really intuitive explanation of the concept.
Deal Addict
Jan 19, 2017
3297 posts
1822 upvotes
chubbytiger wrote: If I buy a stock at $10 per share and one day the price goes down to $5 per share, does that mean I've lost all my money? Do I owe someone money now? How much money do I have if I sell at that price? If the price goes up to $15 per share, do I regain my money?
There is no difference between buying stock & real estate.
Deal Addict
Mar 8, 2013
2637 posts
1348 upvotes
ml88888888 wrote: There is no difference between buying stock & real estate.
There are carrying costs for real estate - property taxes, insurance, utilities, etc. There are no carrying costs for a stock, assuming you paid in cash.
Deal Fanatic
Jan 21, 2014
5134 posts
2747 upvotes
treva84 wrote:
Tomorrow, you want to sell the paper to someone else, and so you take it out of your safe, but you can only find a buyer that will pay $5 for it. So you can either a) say no thank you, and put it back in your safe or b) sell it for $5. They would then hand you a $5 bill, and you're down $5.
There is also a c) you buy another share at $5, your cost is now $7.50 so when it's $15, you sell both and gain $7.50 instead of $5 :)

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