Money on the Sidelines

There is no such thing as money on the sidelines.

When somebody sells stock at a high price and puts money on the sidelines, a buyer pays him with money taken from the sidelines. There is a change of ownership. But the money in the stock market is the same and the money on the sidelines is the same.

No new shares are created or destroyed with your typical transaction.

Now let’s say that 100 shares trade at half price.

Suddenly, the holdings are marked at half value. What has happened to all the money?

Rob Bennett has described it accurately. The money has gone “poof.”

There is no more money available for purchase. It is just that willing sellers and able buyers are exchanging shares at a lower price.

All of the benefits of share ownership remain. The dividend amount per share is the same. The sales price, however, has fallen.

Have fun.

John Walter Russell
August 24, 2009