Why do people say "its only on paper, its not a real loss"

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irasymn10
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Why do people say "its only on paper, its not a real loss"

Post by irasymn10 »

Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
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Re: Why do people say "its only on paper, its not a real loss"

Post by valuables »

easier to rationalize losses if you think of the value as shares owned being the same. behavioral trick to stay the course.
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Even if you're 100% certain you will recover your losses, you have technically lost money.
Technically, you have not lost money. No money has left the account. It's more correct to say that the market valuation has decreased. I've grown to the point where I don't care what the daily market valuation is. It's irrelevant to me because I hold stocks for the long term earnings growth.

If someone knocks on your door and offers you a weak price for your house, have you lost money? But, what if you had to liquidate your house RIGHT NOW!? Then you have lost money is your argument. We have probably all lost 30%+ on our houses this week with this methodology. I say "who cares, I'm not selling my house this week." The emotional attachment to immediate cash value is how people miss the big picture. It's frankly unsophisticated thinking.

Mr Market sometimes offers weak prices. Make sure you never have to be forced into selling so that you can ignore him.
Last edited by jdilla1107 on Mon Mar 16, 2020 11:21 pm, edited 1 time in total.
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Re: Why do people say "its only on paper, its not a real loss"

Post by MoneyMarathon »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit.
I'd assume it's because they didn't need the money right now and have no plan to change their investments in the short term. If they needed the money right now, or if they had plans to change their investments in the short term, the liquidation value is very important. They know they invested in something with a possibility of loss and that, indeed, they are being compensated for taking risk and being able to hold through periods when it can't be redeemed for the original purchase price (the gist of the most common solution to the equity premium "puzzle" - why the heck would we get to make more money off stocks at all, anyway?).

The loss or gain is "realized" when they need to sell. People sometimes also talk about "paper gains," for the same reason, as they're aware the valuations could go down again in the future.

The language of "losing money" is that of making a mistake. If it's not known to be a mistake, it's a bit weird to describe it that way. I think we've seen this in recent days, with people talking about how they lost Teslas and beach houses. I don't know why someone would want themselves to view the month-to-month and year-to-year changes this way, when they have no intention of selling this month or even this year or next. Sounds incredibly stressful.
Last edited by MoneyMarathon on Mon Mar 16, 2020 11:21 pm, edited 1 time in total.
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Re: Why do people say "its only on paper, its not a real loss"

Post by TheTimeLord »

jdilla1107 wrote: Mon Mar 16, 2020 11:12 pm
irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Even if you're 100% certain you will recover your losses, you have technically lost money.
Technically, you have not lost money. No money has left the account. It's more correct to say that the market valuation has decreased. I've grown to the point where I don't care what the daily market valuation is. It's irrelevant to me because I hold stocks for the long term earnings growth.

If someone knocks on your door and offers you a weak price for your house, have you lost money? But, what if you had to liquidate your house RIGHT NOW!? Then you have lost money is your argument. We have probably all lost 30%+ on our houses this week with this methodology. I say "who cares", I'm not selling my house this week.

Mr Market sometimes offers weak prices.
I will buy that when people start talking the same way about their gains and being offered strong prices. While I agree it is more correct to say decrease in value, that decrease in value is measured in dollars which is money. I think the more important point in your analogy is the importance of the loss or gain has to do with its proximity to you needing to convert the asset in cash.
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Re: Why do people say "its only on paper, its not a real loss"

Post by DonIce »

How much did the situation really change from yesterday to today? And yet the offered price is 12% lower. How strongly is the price really related to the value when the market is making swings like this daily? It's all emotion and panic right now.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Independent George »

It depends.

The overwhelming majority of my assets are in retirement accounts, which I cannot access without penalty for at least another 17 years. While the loss in value is real, but it's also not something that affects me in any meaningful way. Realizing that has made the recent nosedive much easier to bear - the loss isn't real to me because I really don't need the money right now, and can afford to be patient.

In 2008, when I held a $205k mortgage on a condo suddenly valued at $125k, the "paper" loss was initially far more emotional because it was on a tangible property... but eventually, that also made it easier to bear. After all, while I couldn't touch my retirement accounts, I was still living in my condo, and enjoying the heck out of it. It still hasn't recovered to my purchase price, but I don't actually feel the loss emotionally until I start thinking of moving; it only matters to me when the loss is realized. This purely hypothetical, too - I remain perfectly happy here.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Oicuryy »

The argument over historical cost accounting versus mark to market accounting has been going on for ages. Here is one fairly recent example.
https://hbr.org/2009/11/is-it-fair-to-b ... ial-crisis

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Re: Why do people say "its only on paper, its not a real loss"

Post by JustinR »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
Yes, but it's not a realized loss until you sell it.
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Re: Why do people say "its only on paper, its not a real loss"

Post by White Coat Investor »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
Because it helps them to stay the course if they think about it this way.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Starfish »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
The simple answer is that if you do realize that stocks go down too you shouldn't be in the game. What matters is only the value when you buy and value when you sell, the trajectory the market took in between is absolutely irrelevant.
If you put in 100$ and the market crawls to 200$ and you sell you think "great success, money doubled" but if it goes first to 400$ and then to 200 you think is a disaster because you have half of the money? it does not make any sense.
S&P 500 DOUBLED since 2010 (nominal). How is that a loss?
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Re: Why do people say "its only on paper, its not a real loss"

Post by willthrill81 »

Many investors have to use these sorts of Jedi mind tricks on themselves in order to stay the course (e.g. 'it's only a paper loss', 'I still have the same shares').

Just this morning, I heard Paula Panta say on her podcast that dollar-cost averaging works in part because you buy more shares when prices fall. I wish people would realize that shares don't matter; dollars do.

Buy-and-hold may be simple, but it's far from easy.
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Re: Why do people say "its only on paper, its not a real loss"

Post by politely »

Ignorance. Or wishful thinking.
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Re: Why do people say "its only on paper, its not a real loss"

Post by dboeger1 »

TheTimeLord wrote: Mon Mar 16, 2020 11:21 pm
jdilla1107 wrote: Mon Mar 16, 2020 11:12 pm
irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Even if you're 100% certain you will recover your losses, you have technically lost money.
Technically, you have not lost money. No money has left the account. It's more correct to say that the market valuation has decreased. I've grown to the point where I don't care what the daily market valuation is. It's irrelevant to me because I hold stocks for the long term earnings growth.

If someone knocks on your door and offers you a weak price for your house, have you lost money? But, what if you had to liquidate your house RIGHT NOW!? Then you have lost money is your argument. We have probably all lost 30%+ on our houses this week with this methodology. I say "who cares", I'm not selling my house this week.

Mr Market sometimes offers weak prices.
I will buy that when people start talking the same way about their gains and being offered strong prices. While I agree it is more correct to say decrease in value, that decrease in value is measured in dollars which is money. I think the more important point in your analogy is the importance of the loss or gain has to do with its proximity to you needing to convert the asset in cash.
I think one important difference is that many people have a retirement number in mind, and so when they reach that portfolio value, they can more or less lock in those gains by rebalancing to safer asset classes. They also contribute money, so absent sudden market swings, an increasing portfolio balance can somewhat mimic a growing cash balance, as the divergence between the portfolio value and the contribution amounts is expected to grow over time. So in a way, they actually are doing what you suggested, even if they don't explicitly use the same terms. In a buy-and-hold strategy, the same thing doesn't exist on the downside. The market value could go to 0 or even negative I suppose, and the investor would still keep contributing till they reach their goal (I guess this breaks down with negative values, lol). Nothing is ever locked in quite the same way, and long-term losses don't approximate recent cash contributions either.
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Re: Why do people say "its only on paper, its not a real loss"

Post by rossington »

willthrill81 wrote: Tue Mar 17, 2020 12:38 am Many investors have to use these sorts of Jedi mind tricks on themselves in order to stay the course (e.g. 'it's only a paper loss', 'I still have the same shares').

Just this morning, I heard Paula Panta say on her podcast that dollar-cost averaging works in part because you buy more shares when prices fall. I wish people would realize that shares don't matter; dollars do.

Buy-and-hold may be simple, but it's far from easy.
What investment that you own are not denominated into shares, i.e.: units of investment?
I'll bet very few, if any. Aren't you a 100% stock investor anyway?
Shares do matter because they are the only way to purchase and place a value your investments.
Shares owned equal investment worth, they are not separate.
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Re: Why do people say "its only on paper, its not a real loss"

Post by nisiprius »

It's one of many statements people say to confirm their bias.

To be blunt, it's something you would expect a financial advisor to say to a client, if the client is upset by a loss of market value in something the client bought on the advisor's recommendation. You would expect a (slightly dishonest) advisor to say "I made you money" if the market value increased, and "it's only on paper" if it's a decrease.

In general, I distrust any statement of the form "think of [this] as [something else]." Securities (not even commodity futures funds) are not insurance; individual stocks (not even GE or Berkshire Hathaway) are not mutual funds; rental real estate is not a bond; etc.

Logically, the situation is clear enough. You have something that's not money. In the case of highly liquid investments such as stocks, bonds, mutual funds and ETFs you (almost always) have a (quite accurate) estimate, the "market value," shown online and on your statement that tells you how much money you would have if you sold them now.

Then you have the "value to you," which is what you will get when you sell them at sometime in the future.

"When you sell them" is theoretically under your control and perhaps in your plan, but for many reasons you often don't follow your plan. "What they will be worth" is a dubious prediction.

The less likely you are to sell them today, the less "real" the loss is. But "the loss I'd have if I sold today" is a precise, reliable number.

"The loss I'd have if I sold them on 3/17/2030" is basically a guess. And opinions will always vary as to whether a crash today should lower our estimate of what the value will be ten years from today. And it depends on how certain you are that you really will hold until 3/17/2030.

"It's only on paper" has some face validity if you are talking about something you truly have no intention of selling today. But a more complete statement is not as reassuring: "Today's loss is only on paper, what it will mean to you thirty years from now when you really to sell it is just as uncertain as ever."

The other half of the equation is "it's only on paper" applies to gains as well. I've been reading, for the first time, Ian Fleming's 1963 nonfiction travel books, Thrilling Cities. He visits Las Vegas, and quotes from a little guide on "How to Gamble Sensibly."
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Re: Why do people say "its only on paper, its not a real loss"

Post by dukeblue219 »

Your gains weren't real either. They were paper gains. Think about it from that angle and it will help.
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Re: Why do people say "its only on paper, its not a real loss"

Post by columbia »

Because they’re foolish?

An asset is only worth what the market would pay you for it today and it is definitely not worth what you hope the market value will be in the future.
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Re: Why do people say "its only on paper, its not a real loss"

Post by oken »

columbia wrote: Tue Mar 17, 2020 6:11 am Because they’re foolish?

An asset is only worth what the market would pay you for it today and it is definitely not worth what you hope the market value will be in the future.
My understanding of bogle investing is that it rests *entirely* on the assumption that markets will always go up. If we don't believe that, we might as well not be here.
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Re: Why do people say "its only on paper, its not a real loss"

Post by sixtyforty »

I think you answered part of your own question. If you lose 30K in your portfolio and need access to the money, it can translate into a real loss. OTOH, if you lose 30K in your retirement portfolio that you won't access for another 10 years it is more of a paper loss. It comes down to how the change in value affects you.
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Re: Why do people say "its only on paper, its not a real loss"

Post by columbia »

oken wrote: Tue Mar 17, 2020 6:15 am
columbia wrote: Tue Mar 17, 2020 6:11 am Because they’re foolish?

An asset is only worth what the market would pay you for it today and it is definitely not worth what you hope the market value will be in the future.
My understanding of bogle investing is that it rests *entirely* on the assumption that markets will always go up. If we don't believe that, we might as well not be here.
Assuming that something will happen, doesn’t mean that it will. There are no guarantees in investing - aside from bonds (and even they can be defaulted on).
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Re: Why do people say "its only on paper, its not a real loss"

Post by tertre »

It's certainly better than yelling, screaming, or covering yourself with ashes, or selling in panic. So it helps, and it's enough I think.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Peculiar_Investor »

dukeblue219 wrote: Tue Mar 17, 2020 6:06 am Your gains weren't real either. They were paper gains. Think about it from that angle and it will help.
Good answer. Ultimately it depends on the lens that you use to view your investments. Do you mark-to-market daily? If so, then it should be done consistently, whether the market is going up, or down, or sideways.
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Re: Why do people say "its only on paper, its not a real loss"

Post by tvubpwcisla »

Money is not gained or lost until you sell.
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Re: Why do people say "its only on paper, its not a real loss"

Post by DizzyHippoMan »

nisiprius wrote: Tue Mar 17, 2020 5:40 am It's one of many statements people say to confirm their bias.

To be blunt, it's something you would expect a financial advisor to say to a client, if the client is upset by a loss of market value in something the client bought on the advisor's recommendation. You would expect a (slightly dishonest) advisor to say "I made you money" if the market value increased, and "it's only on paper" if it's a decrease.

In general, I distrust any statement of the form "think of [this] as [something else]." Securities (not even commodity futures funds) are not insurance; individual stocks (not even GE or Berkshire Hathaway) are not mutual funds; rental real estate is not a bond; etc.

Logically, the situation is clear enough. You have something that's not money. In the case of highly liquid investments such as stocks, bonds, mutual funds and ETFs you (almost always) have a (quite accurate) estimate, the "market value," shown online and on your statement that tells you how much money you would have if you sold them now.

Then you have the "value to you," which is what you will get when you sell them at sometime in the future.

"When you sell them" is theoretically under your control and perhaps in your plan, but for many reasons you often don't follow your plan. "What they will be worth" is a dubious prediction.

The less likely you are to sell them today, the less "real" the loss is. But "the loss I'd have if I sold today" is a precise, reliable number.

"The loss I'd have if I sold them on 3/17/2030" is basically a guess. And opinions will always vary as to whether a crash today should lower our estimate of what the value will be ten years from today. And it depends on how certain you are that you really will hold until 3/17/2030.

"It's only on paper" has some face validity if you are talking about something you truly have no intention of selling today. But a more complete statement is not as reassuring: "Today's loss is only on paper, what it will mean to you thirty years from now when you really to sell it is just as uncertain as ever."

The other half of the equation is "it's only on paper" applies to gains as well. I've been reading, for the first time, Ian Fleming's 1963 nonfiction travel books, Thrilling Cities. He visits Las Vegas, and quotes from a little guide on "How to Gamble Sensibly."
Above all, if you catch yourself making a bet and thinking of the things you cuold buy with the amount of the bet, QUIT! Never let the amount you are betting become large enough to be important to you!
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Re: Why do people say "its only on paper, its not a real loss"

Post by hagridshut »

If I own 100 shares of XYZ fund with cost basis of $100/share, and the Corona virus panic causes XYZ fund to fall to $50/share, I cannot claim a loss of $5,000 on my taxes unless I've actually realized the loss by selling the shares.

Likewise, if XYZ fund rebounds to $150/share, the government does not tax me on the value increase of $5,000 unless I sell and realize the gain.

I believe it is correct to say that one's assets have increased or decreased in market value (in other words, the cash that one could obtain in exchange for those assets at a specific moment in time). It is incorrect to say that money has been "lost", if there is not a transaction where a negative difference between basis and sale price has been realized.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Sandtrap »

Based on a large number of folks who have said that or similar things over the years:
(in casual conversation with businessman, gov't workers, blue collar, etc, etc, etc.)
Ignorance
Pride/Ego/showing off
Ambivilence
Denial (De Nile)
Excuse
Justification
Sales tactic manipulation
etc.

Not once have I heard "It's only on paper, it's not a real loss" from someone who was educated in and understood personal investment finance through experiential as well as academic learning (both).
I could posit that the majority on the above list were "not" bogleheads.

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Re: Why do people say "its only on paper, its not a real loss"

Post by Grt2bOutdoors »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
Actually they’ve lost less than $30K especially if those $30K were gains only. Gains are subject to taxes, in simple terms the true gains are $30k less taxes owed. Of course there are other variables that could affect the ultimate amount actually owed or not.

If you are saving for a house down payment, the money should not be put at risk in the first instance.
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Re: Why do people say "its only on paper, its not a real loss"

Post by JoMoney »

It's not even a paper loss, I have to sell at a lower price for the IRS to let me realize a loss.
Sure would be nice if they let me book a loss every time the market dipped (I suppose that is what people who tax loss harvest attempt).
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Re: Why do people say "its only on paper, its not a real loss"

Post by TheTimeLord »

IMHO, saying something is "A paper loss" is a denial of the risk implicit in investing in stocks and sequence of return risk.
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Re: Why do people say "its only on paper, its not a real loss"

Post by TheTimeLord »

People keep talking about the IRS and "realized loss" only from a perspective of a taxable account. 2 examples to illustrate, selling shares at a loss do not generate a taxable event in an IRA, 401K or Roth which is probably where most people here have the majority of their assets. Example 2 when the government calculates you RMD, they use the value of the account so they are happy recognize the reduction in your accounts value without requiring you to sell your holding.
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Re: Why do people say "its only on paper, its not a real loss"

Post by ValuationsMatter »

Because every time the market reaches a new all-time high, people want to value their portfolio there. When it reaches a recent low, people do NOT want to value their portfolio there. To be fair, the phrase is essentially just comparing realized vs. unrealized gains.
Nowizard
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Re: Why do people say "its only on paper, its not a real loss"

Post by Nowizard »

It is a tip-off that says their portfolio or other income is sufficient to say they are not in a position where they have to sell and incur a real loss...….at least not at the moment. There are others who have no choice but to sell. Incidentally, that includes the institutional investors who have to sell in order to pay those who have sold their stocks or funds. If one reads comments carefully, they will often determine the circumstances of the poster or can ascertain the poster's particular circumstance by reading between the lines. Other posters may have different circumstances and find that the comment does not apply to them. Though there are many concepts to guide investing, the fact that no one knows what the market will do reflects that anyone who is absolute in their statements is fooling themselves. The best we can do is to consider available information, make our choices and accept the consequences. Times like these are ones where we may recognize this more clearly than others.

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MotoTrojan
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Re: Why do people say "its only on paper, its not a real loss"

Post by MotoTrojan »

One of my biggest pet peeves really. If they TLH is it now real? If a retiree has put in $500K and grown it to $5M do they only have $500K?

But I understand it’s a useful tool for those most likely to sell in a period of distress. A more truthful mantra would be that their ownership stake in the companies/indices hasn’t dropped.

If you put $100 into Bitcoin and lost your code when it was valued at $10M, you lost $10M.
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hagridshut
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Re: Why do people say "its only on paper, its not a real loss"

Post by hagridshut »

MotoTrojan wrote: Tue Mar 17, 2020 8:37 am One of my biggest pet peeves really. If they TLH is it now real? If a retiree has put in $500K and grown it to $5M do they only have $500K?
I'd say no.

They have assets with present market value of $5M. What they do not have, is $5M in cash.

I think of it this way: If my only valuable asset was a car with present market value of $10,000, it would be odd for me to tell people that I have $10,000. A car is not cash.
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rascott
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Re: Why do people say "its only on paper, its not a real loss"

Post by rascott »

^^^^

People seem to equate cash and equity ownership. When they are not the same thing.

I own shares of businesses. I own a few houses and a couple cars. What somebody will pay for them tomorrow is unknown. And for the most part I do not care as I'm not in the market to sell any of them.

If people would look at the stock market like they do other asset markets, they would likely be a lot calmer.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Pops1860 »

I also dislike the phrase being discussed here, for the reasons noted.

But, I tend to rationalize my 'buy and hold' tendency by saying (to myself, mostly) that every company has a real, intrinsic value, that its stock price may or may not recognize, and I still own the same amount of that company's intrinsic value as long as I do not sell any of my shares. That's my feel-good delusion. So I temper my criticism of those using the phrase under discussion (living in a glass house, as they say).

But I have a serious question. For a buy and hold investor, the return includes both price gains and declared dividends. And aren't total returns (for those who reinvest dividends) like 50/50 each? This means, for you (buy and hold guy), when the SP 500 price index drops say 20%, your 'loss' is tempered by the fact you were earning those dividends all along, and they didn't disappear with the price drop (additional shares bought, or perhaps deposited in a checking account and spent).

Am I delusional here as well, or is this a reasonable perspective to have to help justify buy and hold patience?
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw
prairieman
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Re: Why do people say "its only on paper, its not a real loss"

Post by prairieman »

jdilla1107 wrote: Mon Mar 16, 2020 11:12 pm
irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Even if you're 100% certain you will recover your losses, you have technically lost money.
Technically, you have not lost money. No money has left the account. It's more correct to say that the market valuation has decreased. I've grown to the point where I don't care what the daily market valuation is. It's irrelevant to me because I hold stocks for the long term earnings growth.

If someone knocks on your door and offers you a weak price for your house, have you lost money? But, what if you had to liquidate your house RIGHT NOW!? Then you have lost money is your argument. We have probably all lost 30%+ on our houses this week with this methodology. I say "who cares, I'm not selling my house this week." The emotional attachment to immediate cash value is how people miss the big picture. It's frankly unsophisticated thinking.

Mr Market sometimes offers weak prices. Make sure you never have to be forced into selling so that you can ignore him.
Great analogy!
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robertw477
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Re: Why do people say "its only on paper, its not a real loss"

Post by robertw477 »

No different than when you make a profit. On paper. You could have been up 100K . Its a profit when you sell. If you dont sell that money is at risk the same way as when you are down. Somehow because we have been in a bull market people think it goes forever.
jajlrajrf
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Re: Why do people say "its only on paper, its not a real loss"

Post by jajlrajrf »

I'm definitely one of the "paper loss" (or "paper gain") people.

The way I think of this is that a stock is, essentially, a commodity. If I buy 1,000 shares of IVV at $10, I no longer have $10,000, I have 1000 shares of IVV. I'll have 1000 shares of IVV until I sell. Yes, there is a valuation of those shares that I might or might not care about, but what you own doesn't change with the fluctuation of the market until there's some realization event.

Now, it's fair to say that it's silly to think this way only when you've lost money. If you're gonna take this tack, as I do, then you have to treat it that way on both parts of the rollercoaster.
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Re: Why do people say "its only on paper, its not a real loss"

Post by BoggledHead2 »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Ive noticed this for years, whether its online, youtube, or friends and family, but when people say "yeah, Ive lost about $30k in my portfolio...but Its only on paper". This doesnt make much sense to me. I understand why they are saying it, because they are assuming their portfolio will recover, and surpass their loss, and then they can sell and make a profit. This makes sense, but it is incorrect thinking IMO.

If you lose $30k dollars in your portfolio, "on paper", you've lost $30k "in real life". Lets say you were in the market for a house purchase, and they needed your assets for the mortgage. Your portfolio is down $30k. You would show them all of your assets, now $30k less than they were a month ago. You wouldnt say "oh, well that $30k loss is on paper, its not a real $30k loss."

Even if you're 100% certain you will recover your losses, you have technically lost money.
You shouldn’t have your mortgage payment in the market

And no, a loss is only a loss when you sell and it becomes a loss.

This is why honest asset allocation is so important.
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Re: Why do people say "its only on paper, its not a real loss"

Post by MotoTrojan »

Pops1860 wrote: Tue Mar 17, 2020 9:17 am I also dislike the phrase being discussed here, for the reasons noted.

But, I tend to rationalize my 'buy and hold' tendency by saying (to myself, mostly) that every company has a real, intrinsic value, that its stock price may or may not recognize, and I still own the same amount of that company's intrinsic value as long as I do not sell any of my shares. That's my feel-good delusion. So I temper my criticism of those using the phrase under discussion (living in a glass house, as they say).

But I have a serious question. For a buy and hold investor, the return includes both price gains and declared dividends. And aren't total returns (for those who reinvest dividends) like 50/50 each? This means, for you (buy and hold guy), when the SP 500 price index drops say 20%, your 'loss' is tempered by the fact you were earning those dividends all along, and they didn't disappear with the price drop (additional shares bought, or perhaps deposited in a checking account and spent).

Am I delusional here as well, or is this a reasonable perspective to have to help justify buy and hold patience?
Price index drops by the amount of the dividend so this is also an emotional response. Taxes aside, dividends that are reinvested don’t boost the portfolio unless the price index happened to drop between ex-div and the reinvestment.
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Re: Why do people say "its only on paper, its not a real loss"

Post by MotoTrojan »

BoggledHead2 wrote: Tue Mar 17, 2020 9:43 am

And no, a loss is only a loss when you sell and it becomes a loss.
Strongly disagree.
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Re: Why do people say "its only on paper, its not a real loss"

Post by BoggledHead2 »

MotoTrojan wrote: Tue Mar 17, 2020 9:52 am
BoggledHead2 wrote: Tue Mar 17, 2020 9:43 am

And no, a loss is only a loss when you sell and it becomes a loss.
Strongly disagree.
Strongly don’t care. About my current balance - since everything I have invested is not something I’ll be touching for 20 years

If January 2020 was the peak of human economic performance and the world is ending - then we’re all screwed anyway
LiterallyIronic
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Re: Why do people say "its only on paper, its not a real loss"

Post by LiterallyIronic »

irasymn10 wrote: Mon Mar 16, 2020 10:57 pm Even if you're 100% certain you will recover your losses, you have technically lost money.
That's not true. I bought an NES Classic when they were first released. I never got around to opening the packaging because we had to do some house remodeling, so it just sat in storage for a bit. Then Nintendo discontinued the NES Classic. The value of mine went from $60 (its purchase price) to around $300. I never sold it, though, because I wanted to keep it. Later, Nintendo re-released the NES Classic and the price went back down.

I didn't "lose money" because the value of my NES Classic went down, just like I didn't "gain money" when its value went up." Same thing with a share of stock.
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Re: Why do people say "its only on paper, its not a real loss"

Post by FlyerJack »

nisiprius wrote: Tue Mar 17, 2020 5:40 am "It's only on paper" has some face validity if you are talking about something you truly have no intention of selling today. But a more complete statement is not as reassuring: "Today's loss is only on paper, what it will mean to you thirty years from now when you really to sell it is just as uncertain as ever."
+1 to the importance of timeframe. There is approximately a 0% chance that I sell my VTSAX shares (total stock market fund), which are all in retirement accounts, sooner than 25 years. The dollar amount today is truly meaningless to me.

There’s nothing false about focusing on shares with that kind of timeframe/investing horizon. In fact, I find it a useful way to think.

Also, some of this discussion seems like an overly-neat, high-level attempt at precision among experts. For a highly-informed Boglehead, maybe the “focus on shares not dollars” advice isn’t useful, or is not precise enough to satisfy. For someone like my brother, who freaks out and wants to sell equities when prices fall despite the fact that he’s not retiring for decades, guess what it helps him to hear? “You still have the same number of shares. Don’t lock in losses. You don’t need to sell for decades. Look at the upward trend over the decades,” etc. It’s useful to help him stay the course. And again, nothing about that is false. It just seems pedantic and not useful to tell someone, “Actually, you’re losing real dollars right now!” What is the average person supposed to take from that message? How does that help them?
Last edited by FlyerJack on Tue Mar 17, 2020 10:17 am, edited 4 times in total.
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Abe
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Re: Why do people say "its only on paper, its not a real loss"

Post by Abe »

If I have a $30k loss on paper, and I sell everything then I have a $30k loss for sure. Up thread someone said all that matters is the value when you buy and the value when you sell. Everything between point A and point B is not that important as long as we stay the course. A $30k loss is not that important as long as we stay the course and don't sell; it's just on paper. I guess it's all in how you look at it.
Slow and steady wins the race.
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Re: Why do people say "its only on paper, its not a real loss"

Post by alfaspider »

For me, one advantage of tax-favored accounts is that it's easier to look at them as not real. I'd take a huge tax hit if I were to withdraw from my 401k, so I mentally account for it as not really there in the first place. Doesn't really matter if my balance is $1MM or 100k today. The plan is the plan and I am sticking to it. The balance will only start mattering as my time horizon starts to narrow and I am old enough to take withdrawals without penalty (or are subject to RMDs).

Sure, it's fun to see my net worth amount go up (and I do track it regularly), but it's more of a game than a real thing right now. The losses are not "real" because they have essentially no bearing on the eventual balances I will use to fund my retirement 25+ years from now. Obviously, my perspective will become more difficult for downturns that occur as I approach retirement, but even most retirees have a long time horizon from a market perspective.
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Re: Why do people say "its only on paper, its not a real loss"

Post by willthrill81 »

rossington wrote: Tue Mar 17, 2020 4:34 am
willthrill81 wrote: Tue Mar 17, 2020 12:38 am Many investors have to use these sorts of Jedi mind tricks on themselves in order to stay the course (e.g. 'it's only a paper loss', 'I still have the same shares').

Just this morning, I heard Paula Panta say on her podcast that dollar-cost averaging works in part because you buy more shares when prices fall. I wish people would realize that shares don't matter; dollars do.

Buy-and-hold may be simple, but it's far from easy.
What investment that you own are not denominated into shares, i.e.: units of investment?
I'll bet very few, if any. Aren't you a 100% stock investor anyway?
Shares do matter because they are the only way to purchase and place a value your investments.
Shares owned equal investment worth, they are not separate.
Yes, shares matter for record keeping purposes, but that's all. I dare say that not even 1% of the posters here know how many shares of each investment they own, yet many here can tell you pretty closely the current value of all their shares.

There are several problems with viewing one's investment in terms of shares rather than dollars. One of which is that it often leads to dividend-chasing strategy. Another is that it leads one to view dividends as 'special'.
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Re: Why do people say "its only on paper, its not a real loss"

Post by JackoC »

valuables wrote: Mon Mar 16, 2020 10:59 pm easier to rationalize losses if you think of the value as shares owned being the same. behavioral trick to stay the course.
Bingo, drop mike. :happy All of us long the stock market have lost a painful amount of money in recent days/weeks. If you need to adopt the irrational dictum that it's just 'paper losses' to avoid selling (assuming you shouldn't sell, that depends on your circumstances), then I guess whatever works for you. But you have lost money in reality, sorry. If the future plays out as the past generally has, you'll get it back.
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