Photo: TelstarWhen the stock market plummets, where does the value of your holdings actually go? This article from Investopedia explains it well.
Stocks, like money itself, have an explicit value and an implicit value. Back in the day, when currencies like shells and salt fell out of fashion, it was their implicit value that plummeted; their usefulness didn’t change. Similarly, in a market panic, a stock’s value may simply vanish — like your socks in the dryer. (Keep this in mind when the stock market starts to rise, for that value too is as implicit as a barnful of salt.)
Stocks and currency are, of course, not the only things heavily dependent on implicit value. Think about diamonds, for one: why, exactly, are they so expensive?
A far humbler example but one that is closer to home (for me at least) is a book. When a book that you’re dying to read is published, you might be happy to shell out $25 on the spot. But for everyone who doesn’t buy the book, it has a far smaller implicit value. If demand is low enough, that same book might end up for sale for $1 on the street in a matter of months. At that price, it is probably worth it for just about anyone, for although this asset is usually overlooked, a hardcover book — held firmly, spine out — makes a fine weapon.
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good answer for why a diamond is so expensive in a 27 year old atlantic monthly article:
http://www.theatlantic.com/doc/198202/diamond
But that one dollar (or $25) book generally outlives its usefulness after it’s read and serves only to take up space on your bookshelf. Oh, sure, you might have a date who swoons, “Oh, you read ‘Freakonomics’ too! How cool!” or you might lend it to someone–but how often do you take something off your bookshelf to reread?
Many reading groups now, instead of each member buying the same title, have each member buy a different book and trade them around.
Stocks, Socks, and Schmucks. Sounds like a line Jim Cramer would want to borrow.
“…a hardcover book – held firmly, spine out – makes a fine weapon.”
Pffft. Amateur. A truly skilled user tears out the acknowledgment page and the last page of the index and inflicts painful paper cuts.
Books are best checked out from the library, not bought. There are very few books that I have to read right away, and very few that I will want to read twice, therefore giving me no good reason to buy a book fresh off the presses.
If after reading my library copy I decide that I do want a copy to keep, I can usually find a used copy at a fraction of the price it sold for new.
At least conch shells and salt have some use value. A piece of green paper is only good for kindling or wallpapering.
Probably 80-90% of the books I own have been off the shelf more than once – either to re-read for pleasure or to refer to for information. And we’re running out of shelf space and thinking about buying a fourth bookshelf. On the rare occasion I buy a book I don’t think I’ll read again, it goes to the library or a book swapping site – but if I knew I’d only read it once I probably wouldn’t have bought it in the first place.
Doesn’t matter how many you buy they always end up worthless.