When you own a stock, you own a small piece of a company that is traded publicly. So, if the value of the company as a whole goes up and down or the price of the stock drops so will the value of the stock.
When the price of a share goes down, the change in value doesn’t go to different people. Instead, the value of the company goes down. The forces of supply and demand control the stock market. In other words, it’s not a “zero-sum game” like gambling in a casino, where there is one winner for every loser and vice versa.
What are stocks?
A stock is a way to put money into a company. Companies sell stock shares to raise money for their operations and to help them grow. Investors buy these stock shares in the hopes of getting a return on their money.
Disappearing Money
Before we talk about how money disappears, it’s important to know that the price of stocks is set by supply and demand, no matter if the market is going up (called a bull market) or down (called a bear market). And how much money you make or lose depends on how the stock prices change.
Which two kinds of stock are there?
Common stock and preferred stock are the two main types of stocks.
common stock:- Shares of stock. The name says it all
Better Stock:-Preferred stock is a form of ownership in a company, but it doesn’t usually give the same voting rights as common stock.
Also, Read:-What is common stock, and what are its different types?
How the value of a company can go down
First, we must grasp how a company’s value is “generated.” A stock’s price rises when there are more buyers than sellers (supply it). Because purchasers must compete for the stock, the more they desire it, the more they are ready to pay for it.
Stock prices fall when demand is lower than supply. High buyer and seller numbers both increase and decrease value.
As of May 2020, there are 422,033,000 shares of Waste Management Inc. (WM) that are still in circulation. If the price of its shares dropped by $1, it would mean that the company lost about $422 million in value.
With the stock’s popularity, your money is simply disappearing. However, the company’s earnings reflect its efficiency, which explains its popularity decline.
If the stock falls, you are part-owner of a company that is no longer seen as generating well. You must sell this company for less to get rid of it. Why? because it’s valued less.
Thus, a stock’s realized loss is the difference between the market’s perception of the company when you bought it and when you sold it.
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