To those who claim it's not a loss until you sell, consider that once you buy a stock your money is gone. You now own an asset not a currency. You can't spend a stock. If you want to buy something you have to convert the stock back into money. You won't necessarily be able to sell it for what you paid for it. When you tie up your cash in the market, you don't know when you'll need it. There are a lot of scenarios where one might need cash in a hurry. You never know when you might have to access your investments in an emergency. Considering ways to protect your capital should be part of your trading plan!
I know this is a tangent, but a point worth making. Stocks are money. Stocks are currency. Companies can use their over-valued shares to buy out other companies. Individuals can use their over-valued shares as collateral for loans (i.e., Elon Musk). The dark secret no one wants to talk about is, a big cause of inflation is actually the bubble in asset prices being monetized into cash and then spent in the economy thus driving the price of goods higher.
It's not a loss until you sell. For the same reason that every trader learns on day 1 that a trade is not a winner until you actually sell. Unrealized profits are not actual gains, just like how unrealized losses are not actual losses.
not sure your point, you can margin the stocks and draw cash, just like a checking account. if you have lot of unrealized gains, you can “overdraft”. most of my funds is in brokerage accounts, i view banks are just utility companies, in and out for expenses.
True I guess. Back in the day I have traded stock certificates for other assets. I haven't actually been issued a stock certificate for years. You can use assets as collateral but you now run the risk of a margin call. Using excess margin is one of the causes of a bubble bursting. Try and convince your broker that the stock you paid $50 for is still worth $50 when it's trading at $25.
The focus should be net worth always. purchasing equity is simply exchanging the most liquid asset (one that neither appreciates nor depreciates despite inflation because it always retains its face value), into a less liquid - appreciating asset. But Net Worth remains the exact same (depending on the post transaction price fluctuations of course). Basic accounting is more powerful than just about anything when it comes to building wealth...there are a higher % of accountants that are millionaires than there are lawyers.
If you start with a 100k portfolio and at the end of the year it's worth 80k you would have trouble convincing me that you didn't have a loss. I’m going to offer you an investment that is guaranteed not to lose money. It is based on the premise that if I don’t sell I haven’t lost any money. But if at the end of the year the value of the investment is less than you started out with, have I lost your money or haven’t I. You call me and I tell you not to worry that it might go up soon, if you don’t sell you won’t have lost any money. Now you may not have lost any money yet, but what happens if you need the money. You certainly won't be able to borrow what you paid for the investment using the investment as collateral
My point is that to think you haven't lost money till you sell is fooling yourself. You just haven't realized the loss you have.