Forum Archive Index - September 2000

[Rhys Lewis <rhys.lewis@zivo.co.nz>]

Why did I go through the lights this morning?  Because they were green or because I wanted to go to work?

 

If you analyse the value of your shares according to accounting principles then they have a value every moment that the market is open and there buy orders active.  This is the immediate (existentialist perhaps?) value of the shares.

 

However value is a concept which transcends the immediate 'price' of the share.  Whenever you buy a share you are effectively saying that the value of the share is not the current price.  This value exists as a 'belief' in the mind of the person holding the share.  The only time the two intersect is when a share is bought or sold.

 

The reason this discussion isn't getting anywhere is because you are arguing at different levels.  The immediate value argument is the 'scientific' level.  I went through the light because it was green.  The value-when-sold argument is at the 'faith' level, and is at the belief/meaning (religious?) level.  I went through the light to get to work - the immediate events are the elements of a higher-order truth.

 

In strict accounting terms the value goes up and down like a yo-yo.  But for the trader willing to act in faith, there is one 'true' value which is yet to be realised, and which can only be glimpsed through your framework of belief. 

 

For those unwilling to believe that there is a future value to which the price is leading - you have made a loss.  But to those who have the faith to believe - the value is as yet undetermined.

 

Sacramental economics.

 

Either way you loose until you find someone who believes the value is higher than you do.

 

Rhys Lewis

-----Original Message-----
From: vincent.wang [mailto:vincent.wang@xtra.co.nz]
Sent: Tuesday, September 05, 2000 10:11 AM
To: sharechat
Subject: [sharechat] Is a paper loss a real loss?

A paper loss is an unrealized loss.  The accounting book told us that when we book the value of any asset, we should not book a value higher than the value the asset can be realized(sold).

 

Following example is a good illustration why this is the right way to make your booking:

 

ABC Company is an investment company buying and selling shares(just like GPG and BRY).  On 31/12/1999, the company held three investments:

 

                cost              market price on 31/12/99

                ------              ------------------------------------

 

stock A    $1.00                      $0.50

stock B      2.00                        1.00

stock C      3.00                        3.00

Total         $6.00                      $4.50

 

If the company is for sell on 31/12/99, do you pay $6.00 or $4.50 to buy this company assuming other things being equal?

 

Small investors are not different from an investment company.  We should adopt the similar generally accepted accounting principles to treat our book. We can't assume the share prices of stock A and B would recover in the future.

 

Hope this would help.

 

RGDS,

 

Vincent Wang