When a stock falls, we lose money. But to whom or to what? Where does the money go?
To understand the answer, remember that investing isn't like gambling; you're not playing against the house. Out in Vegas, if you lose a bet, that money goes right into casino coffers. But on Wall Street, when a company's stock price declines, nobody necessarily directly benefits from the loss. Let's say you own shares of the Velvet Elvis Art Factory Inc. (ticker: KINGG). If the stock drops 20% one day, you haven't technically lost any money -- unless you sell the stock. You still have the same number of shares you owned yesterday. The shares are each worth less today, though. When a stock tumbles, its value isn't redistributed. It merely shrinks.
That said, there are people who profit when certain stocks fall. These folks do something called "shorting" a stock, where they profit if a stock price falls. (Learn more about shorting in these articles: Shorting Stocks FAQ, The Art of Shorting, and Is Shorting Stocks Foolish?)
Another way to think about this concept is to think of some other items that are traded and whose value changes over time -- items such as baseball cards or even paintings. They're worth, at any given moment, what someone is willing to pay for them. If you buy a baseball card and five years later it's worth a lot less, you haven't really handed over any dollars in loss to anyone. When you sell it, you'll get less for it than you paid, but its value has simply shrunk and hasn't been reassigned to someone else.
You can learn more about how the financial world works by checking out our Investing Basics area and our Fool's School. Check out our well-regarded online how-to guides, too. They can help you learn to make sense of financial statements, among other things. To learn to more about brokerages and possibly find a better brokerage for yourself, check out our Broker Center.
