WHEN THE STOCK PRICES GO DOWN, WHERE DOES THE MONEY GO ?

INTRODUCTION:-

A share price is the price of a single share of a number of sale able stocks of a company. Once the stock is purchased, the owner becomes a shareholder of the company that issued the share.

STOCK PRICES are a function of demand and supply. If demand is more i.e. more buyers it will result in increase in prices.If the supply is more i.e. sellers are then the prices will go down.

According to DOW'S THEORY any rise in stock prices follows three phases.

The first phase is of Accumulation when the stock prices are at all time low and there are very few smart informed buyer who coolly accumulate as many shares as possible without causing much price rise.

The second phase of public participation phase, when because of sustained price rise public starts participation and buys the stock.

The third phase is of distribution. Here the prices have reached a very high level from the basic line and are soon likely to reach unsustainable levels. The layman and general public which normally does not invest money gets attracted because of very high prices and out of greed starts buying the stocks.In this phase the newspapers and T.V. channels are full of stories about the stock market which attracts the lay investors. Here the smart investors of first phase starts selling their holdings to these greedy investors hence distribution occurs where in shares are distributed from smart investors to greedy investors.

Then prices reach a level where nobody is ready to buy them,this results in reversal of the uptrend and the prices begin to fall. As more investors starts loosing money, more people start selling thereby adding momentum to the fall.Thus major amount of the money is pocketed by the initial smart investor and the persons entering last loose the most.

Money just cannot appear from nowhere and vanish into nothing.Profits and losses are made only when stocks are actually sold off, otherwise, its just paper loss or paper profit.

A person makes profit when he buys stock from someone at a lesser price and then sells it to someone at a higher price.Thus the money changes hand and just does not vanish.

It has been wisely said that stock market is a place where two types of people come, one with money and the other with experience and at the end of the day the first leaves with experience and the second with money!

CONCLUSION:-

From the above explanation i came with a conclusion that you only gain or lose money after you sell the stock.When people buy stock the price goes up and when people sell it the price goes down.When you buy a stock and make money, that money comes from another investor that lost money on a transaction and visa versa. In essence, its like betting - when you gain someone else losses and when you lose someone else gains. The money that resides in the market is used for expenses for whatever they need it for.