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

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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 »

willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
That is not mathematically correct.

Inheriting something that is worth 0, means a basis of 0.
The current market value is 0.
0 - 0 = 0.

0 is neither negative nor positive. This cannot, therefore, be either a loss or a gain to the inheritor.

Edit: The Grantor of the will could have realized a loss under the tax code.

The Internal Revenue Service treats stock that becomes irreversibly worthless as a Capital Loss: Frequently Asked Questions Losses (Homes, Stocks, Other Property) : "Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.

This is mechanically equivalent to "selling" at 0, and claiming the loss.
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willthrill81
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Re: Why do people say "its only on paper, its not a real loss"

Post by willthrill81 »

hagridshut wrote: Tue Mar 17, 2020 7:03 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
That is not mathematically correct.

Inheriting something that is worth 0, means a basis of 0.
The current market value is 0.
0 - 0 = 0.

0 is neither negative nor positive. This cannot, therefore, be either a loss or a gain to the inheritor.

Edit: The Grantor of the will could have realized a loss under the tax code.

The Internal Revenue Service treats stock that becomes irreversibly worthless as a Capital Loss: Frequently Asked Questions Losses (Homes, Stocks, Other Property) : "Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.

This is mechanically equivalent to "selling" at 0, and claiming the loss.
The loss was incurred by the individual who bought them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
4nickt
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Re: Why do people say "its only on paper, its not a real loss"

Post by 4nickt »

Couldn't have said it any better. I have told my "market timing" colleagues the same thing. As well as my spouse who wakes up reading the financial pages and suddenly wants to jump into cash.

quote=valuables post_id=5103292 time=1584417577 user_id=157184]
easier to rationalize losses if you think of the value as shares owned being the same. behavioral trick to stay the course.
[/quote]
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arcticpineapplecorp.
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Re: Why do people say "its only on paper, its not a real loss"

Post by arcticpineapplecorp. »

five different ways people think about "losses" (choose your own adventure):

1. when the value of your portfolio declines you've "lost" money. I.E., you've had more, now you have less.
example: if you the portfolio was worth $100,000 and now it's worth $50,000, you've lost half your money (regardless of what happens in the future).

2. you only lose when you sell after a decline.
Example: If your portfolio was worth $100,000 and now it's worth $50,000 and you sell now, you walk away with less than you could have had, or might have had (in the future) if you held on tight because...

3. when the value of your portfolio declines, you haven't lost anything as long as it recovers in time (through the value rising, new investment, dividend reinvestment, etc.).
Example: If your portfolio was worth $100,000 and now it's worth $50,000 but you do not sell and over time the value of your investment goes back up to $100,000 you haven't lost anything.

4. you only lose if you sell something for less than you paid for it originally.
example: If you bought an investment for $100 and ten years later it's worth $200, then in the eleventh year it falls 30% and is now worth $140, if you sell it have you "lost" anything? No, it's a long term capital gain. So even though it's worth less than it once was, it's still worth more than you paid for it originally. Of course, some are going to chime in saying "But how much did inflation go up over those 11 years?" Which brings me to my final point...

5. losses in the stock market are generally due to volatility and are in the short term (the long term trend has been positive and returns outpace inflation).
example: People want to avoid the volatility of the stock market and instead put their money in a savings account (or some other safe asset). Just because you won't see volatility in safe assets doesn't mean you aren't incurring losses. If the percentage you earn on your savings doesn't outpace inflation, you've lost money in real terms. A slower, (more invisible), less dramatic loss, but a greater loss the longer money is kept in "safe" assets. Your greatest risks are inflation and longevity risk.
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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 »

willthrill81 wrote: Tue Mar 17, 2020 7:33 pm
hagridshut wrote: Tue Mar 17, 2020 7:03 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
That is not mathematically correct.

Inheriting something that is worth 0, means a basis of 0.
The current market value is 0.
0 - 0 = 0.

0 is neither negative nor positive. This cannot, therefore, be either a loss or a gain to the inheritor.

Edit: The Grantor of the will could have realized a loss under the tax code.

The Internal Revenue Service treats stock that becomes irreversibly worthless as a Capital Loss: Frequently Asked Questions Losses (Homes, Stocks, Other Property) : "Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.

This is mechanically equivalent to "selling" at 0, and claiming the loss.
The loss was incurred by the individual who bought them.
I did acknowledge that, where I stated that the Grantor could have claimed a Capital Loss on the asset, as if they had realized a loss by selling at 0. Going to 0 permanently is functionally (by the laws that govern the flows of our money) the same as a transaction event that has been Realized at 0.

On the other hand, an asset losing 50% of market value on a temporary basis, with no sale, is not functionally the same as selling at 50% and Realizing a 50% loss.

Again, I disagree with the premise that stocks or other Capital Assets are actually money. They can be exchanged for money (their market value, which usually varies with time), but they are not money. I cannot pay my federal taxes, or any other bills for that matter, with shares of VOO, or gold bars, or Real Estate.

Now, someone suggested several posts above that the notion of "paper losses" (unrealized losses) causes people to hang on to assets that they should have sold. This may be true for some people, but it is not true for me. I've always believed that the time to sell an asset, is when I no longer believe that the asset has the appreciation potential I want, within my specified time horizon.

I would not hang on to an asset merely to avoid either realizing a loss or realizing a lower gain than I initially wanted.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Nate79 »

It is financial illiteracy that continues to perpetuate the wrong idea that a paper loss, aka unrealized loss is not a real loss -meaning you haven't lost money until you sell. This erroneous thinking is similar to not understanding that a house, car, etc are assets and have a value (appreciating or depreciating with time).

Stocks, bonds, cars, houses, etc are assets whose value changes with time due to a variety of factors. All of which affect your net worth at any point in time.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Rosencrantz1 »

hagridshut wrote: Tue Mar 17, 2020 8:28 pm
willthrill81 wrote: Tue Mar 17, 2020 7:33 pm
hagridshut wrote: Tue Mar 17, 2020 7:03 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
That is not mathematically correct.

Inheriting something that is worth 0, means a basis of 0.
The current market value is 0.
0 - 0 = 0.

0 is neither negative nor positive. This cannot, therefore, be either a loss or a gain to the inheritor.

Edit: The Grantor of the will could have realized a loss under the tax code.

The Internal Revenue Service treats stock that becomes irreversibly worthless as a Capital Loss: Frequently Asked Questions Losses (Homes, Stocks, Other Property) : "Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.

This is mechanically equivalent to "selling" at 0, and claiming the loss.
The loss was incurred by the individual who bought them.
I did acknowledge that, where I stated that the Grantor could have claimed a Capital Loss on the asset, as if they had realized a loss by selling at 0. Going to 0 permanently is functionally (by the laws that govern the flows of our money) the same as a transaction event that has been Realized at 0.

On the other hand, an asset losing 50% of market value on a temporary basis, with no sale, is not functionally the same as selling at 50% and Realizing a 50% loss.

Again, I disagree with the premise that stocks or other Capital Assets are actually money. They can be exchanged for money (their market value, which usually varies with time), but they are not money. I cannot pay my federal taxes, or any other bills for that matter, with shares of VOO, or gold bars, or Real Estate.

Now, someone suggested several posts above that the notion of "paper losses" (unrealized losses) causes people to hang on to assets that they should have sold. This may be true for some people, but it is not true for me. I've always believed that the time to sell an asset, is when I no longer believe that the asset has the appreciation potential I want, within my specified time horizon.

I would not hang on to an asset merely to avoid either realizing a loss or realizing a lower gain than I initially wanted.
Agreed. I attempted to make this point in some other thread.... but, probably not as clearly as you have here.
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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 »

Here's an odd thought experiment:

Suppose 1 share of Fund XYZ costs 100 Currency today. Also suppose that an inflationary event causes Currency to lose 90% of its buying power overnight (100 Currency tomorrow only buys what would have cost 10 Currency today).

Tomorrow, 1 share of Fund XYZ has market value of 1000 Currency.

Did a person who holds 1 share of Fund XYZ really gain anything? :mrgreen:

I hypothesize that what people actually perceive when markets go down, is loss of Buying Capacity at a specific point in time. People sort of have a general sense of what a house costs in their area, or how much they'd have to pay for an automobile, or what they'd pay for a bag of groceries that they typically purchase. It's easy to run the math on Market Value of securities and get a sense of what one could or could not buy on a particular day if they theoretically sold their assets.

However, Buying Capacity is not the same as Money.

Money can have vastly different Buying Capacity at various points in time. Even in periods of low inflation, like today, the Buying Capacity of money slowly erodes, as arcticpineapplecorp astutely noted in their post above ("five different ways people think about "losses" (choose your own adventure)"). My thought experiment involving inflation is pretty severe, to illustrate the point more clearly, that Buying Power != Money.

When stocks and other assets go down, I perceive that I have lost Buying Capacity in the moment, but my purpose of owning those assets is to have a chance of growing Buying Capacity that I can use decades in the future. Edit: Selling stock assets that have gone down means losing that future growth potential, although I could theoretically buy back in (easier said than done in a down market). Holding those assets means keeping that future growth potential.
Last edited by hagridshut on Tue Mar 17, 2020 9:43 pm, edited 1 time in total.
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jdilla1107
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
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willthrill81
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Re: Why do people say "its only on paper, its not a real loss"

Post by willthrill81 »

jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
Where did I say that there is a difference between an unrealized loss and a paper loss? They are one and the same. But when most people use the term 'paper loss', they do so to convey the idea that they 'have not really lost anything', which is false.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Caduceus »

The people who say that the losses are only "on paper" are wrong, but not for the reasons you think.

Assets have true intrinsic values within a reasonable range of estimates. Berkshire Hathaway might, for example, be worth some amount between $450 billion and $550 billion. Reasonable people can disagree within a range because they might have different outlooks on Berkshire's energy business, or its railroads, etc. If the stock market quotes you a price per share that falls way below the low end of the estimate, which in this example is $450 billion, then the losses are indeed only "on paper" if you don't sell them, because you still own an asset whose true value is worth more than what the market is quoting you. And in a capitalistic society full of self-interested individuals looking to make money, those asset prices won't stay quoted at these prices for long.

But not all losses are like that. The recent decline in the value of airline stocks, for example, is very real. If Congress insists on equity dilution as a condition of any aid to the industry, those losses will certainly not be "paper losses."

To put it another way: the losses you see may or may not be paper losses. Whether they are depends on whether the changes in market prices accurately reflects the underlying value of the business.
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Re: Why do people say "its only on paper, its not a real loss"

Post by MathIsMyWayr »

Nate79 wrote: Tue Mar 17, 2020 8:33 pm It is financial illiteracy that continues to perpetuate the wrong idea that a paper loss, aka unrealized loss is not a real loss -meaning you haven't lost money until you sell. This erroneous thinking is similar to not understanding that a house, car, etc are assets and have a value (appreciating or depreciating with time).

Stocks, bonds, cars, houses, etc are assets whose value changes with time due to a variety of factors. All of which affect your net worth at any point in time.
What they are trying to mean is that the loss in the stock market is permanent if you sell and bail out. On the other hand, if you do not sell, there is a chance to recover the loss and even realize a profit from the stock market in the future. Nobody is so illiterate as you imagine. Similar to the argument of the number of shares. No ground for claiming to be wiser than others.
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Re: Why do people say "its only on paper, its not a real loss"

Post by rossington »

diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Since you did inherit the stocks there is no loss to you if they were worthless to begin with.

Suppose they were good quality stocks and yesterday they dropped by 10% from your inherited value and today they gained 10% back to your inherited value. Then tomorrow they gain or lose 10% and you have not sold anything. Do you have realized gains/losses or unrealized gains/losses?
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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 10:14 pm
Where did I say that there is a difference between an unrealized loss and a paper loss? They are one and the same. But when most people use the term 'paper loss', they do so to convey the idea that they 'have not really lost anything', which is false.
In practical terms you give up (or lose) your own money when you choose to pay for an investment. That is where it is a REAL loss to you because you don't have the money anymore. After that until you sell that investment there is no loss/gain to you beyond the original principal.
Anything in between is a "paper(unrealized) gain/loss".
It is not false because it is realized gain/losses that are the bottom line.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: Why do people say "its only on paper, its not a real loss"

Post by columbia »

I guess the no loss (and therefore no again in other situations) folks don’t ever rebalance their accounts. Why would they, under the underlying logic, because their holdings apparently aren’t what the market value is; it’s whatever magic number they’ve attached to it.
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Re: Why do people say "its only on paper, its not a real loss"

Post by anonsdca »

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

Because as you can see by this week, one day your portfolio value can drop by $20K, the next day it could increase $10K. The next day it could decrease $30K and the next day after that it could increase $20K. This happens to be a downward slope, but it could just as easily be an upward slope. In the end it doesnt matter if you are not selling anything.
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Re: Why do people say "its only on paper, its not a real loss"

Post by MathIsMyWayr »

anonsdca wrote: Wed Mar 18, 2020 5:32 am "Why do people say "its only on paper, its not a real loss"

Because as you can see by this week, one day your portfolio value can drop by $20K, the next day it could increase $10K. The next day it could decrease $30K and the next day after that it could increase $20K. This happens to be a downward slope, but it could just as easily be an upward slope. In the end it doesnt matter if you are not selling anything.
As long as you hold on to GE stocks without selling, you will be fine. Even if GE goes bankrupt, it does not matter and you do not lose money.
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Re: Why do people say "its only on paper, its not a real loss"

Post by azanon »

jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
The myth - for clarification of this discussion - is that paper losses are not also REAL losses. They are also real losses, and it's irrelevant whether you actually realize them or not.

So yeah, technically and strictly speaking, there is such thing as a paper loss.
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Re: Why do people say "its only on paper, its not a real loss"

Post by JackoC »

azanon wrote: Wed Mar 18, 2020 9:55 am
jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
The myth - for clarification of this discussion - is that paper losses are not also REAL losses. They are also real losses, and it's irrelevant whether you actually realize them or not.

So yeah, technically and strictly speaking, there is such thing as a paper loss.
Yeah the defence of 'it's *only* on paper' (note the original topic, my * *) only has any logical leg to stand on at all if it emphasizes semantics, saying that 'paper loss' is just a synonym for a loss on a still open position*. OK maybe, but the problem is the claim that such a loss is any less 'real' *now* than if you close the position. No, it simply is not. For now that's what you've lost, sell or not. And the 'reasonable people's opinion of the real value' of certain stocks v other ones which 'will really suffer shareholder value declines' is a bogus argument too. That violates the basic premise of BH'ism and holding the whole market which says you can't tell if Berkshire Hathaway's current market price is any more 'right' or 'wrong' than UAL's. Otherwise you'd buy the individual stocks the market is 'undervaluing' right now and avoid the ones where it has the value impairment right.

*'realized' is a tax term. The question here is if you're long stocks and they went down a lot whether there's any difference in your loss right now depending whether you keep the position open or close it. Answer: no. Your *future* returns will differ depending whether you close the position now. But nobody can say whether your future returns will be superior if you go to cash now or keep your stock position open. Historically in general future returns are more positive keeping the position open, and an average retail investor is unlikely to improve on that by closing out now and getting back in later.
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Re: Why do people say "its only on paper, its not a real loss"

Post by fortyofforty »

There are very few things I own, the value of which I can ascertain at least once per day, or minute by minute in most cases. My house? Nope, nobody is ringing the doorbell offering me varying prices every minute. The total value of stocks has decreased, significantly. However, until I convert to cash, in order to spend it on something else, I haven't locked in that loss, so I do consider it to be "only on paper", or something that doesn't matter concerning my immediate financial situation. Only spendable cash is locked into its current value, and even that varies based on inflation and the currency exchange rates (largely invisible, day to day).
azanon
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Re: Why do people say "its only on paper, its not a real loss"

Post by azanon »

fortyofforty wrote: Wed Mar 18, 2020 10:13 am There are very few things I own, the value of which I can ascertain at least once per day, or minute by minute in most cases. My house? Nope, nobody is ringing the doorbell offering me varying prices every minute. The total value of stocks has decreased, significantly. However, until I convert to cash, in order to spend it on something else, I haven't locked in that loss, so I do consider it to be "only on paper", or something that doesn't matter concerning my immediate financial situation. Only spendable cash is locked into its current value, and even that varies based on inflation and the currency exchange rates (largely invisible, day to day).
Some of what you're saying, I wouldn't even disagree with, and I view paper losses as real losses. As long as you're willing to admit assets have fluctuating prices, and you can reasonably estimate that price at any given time, then I don't have any quarrels with what you just said. And it looks like, in so many words, that's what you're acknowledging.

But it's a strawman of sorts to suggest that because you can't assess, say, a house's value on a minute-by-minute basis, that it cannot be reasonably valued were you to hire a professional appraiser, or get a really rough estimate of its value from Zillow. I believe all the "rest of us" are saying is that your house has an approximate value at any given moment, that is not dependent in any way on whether or not you sell it or, using your terms, "lock it in".
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Re: Why do people say "its only on paper, its not a real loss"

Post by Rosencrantz1 »

azanon wrote: Wed Mar 18, 2020 9:55 am
jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
The myth - for clarification of this discussion - is that paper losses are not also REAL losses. They are also real losses, and it's irrelevant whether you actually realize them or not.

So yeah, technically and strictly speaking, there is such thing as a paper loss.
Of course there is. It's a defined term. Just as "blue chip" or "dead cat bounce" have a definition. Those claiming financial illiteracy and myths should take a moment and look up the term "paper loss" - you may dislike the definition or disagree with it, but, it does, in fact exist.

I'm sure there are many cat lovers out there that dislike the investment term "dead cat bounce" too - but, it doesn't mean it doesn't have a definition in the investment world. :beer
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

For all the posters who enjoy trying to twist the definitions of words: Does inflation result in a loss of money? (Please don't actually answer this question, I intend it to be illustrative.)

The problem with this entire discussion is that the precise words matter. For example, the reason that the term "paper loss" exists is for a balance sheet.

Day 1 Balance Sheet:
$500
100 shares of Company A stock

Day 2 Balance Sheet:
$500
100 shares of Company A stock

Both of these are correct statements:

- There has been no change to the balance sheet
- The mark-to-market valuation of the balance sheet has decreased by 5%
Rosencrantz1
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Re: Why do people say "its only on paper, its not a real loss"

Post by Rosencrantz1 »

willthrill81 wrote: Tue Mar 17, 2020 10:14 pm
jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
Where did I say that there is a difference between an unrealized loss and a paper loss? They are one and the same. But when most people use the term 'paper loss', they do so to convey the idea that they 'have not really lost anything', which is false.
I have no idea if this is true about "most people" - but, I can tell you it's absolutely not true about me. When I've used the defined term "paper loss", I could just as easily have said "my account is showing down about $200K" and then followed that up with "me? I'm not selling" (I guess the unrealized part of the equation). :beer

To be fair, you may be right about "most" people - I really don't know how others think about it. I've used the term in the way its definition is generally accepted in investment/accounting parlance.
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Re: Why do people say "its only on paper, its not a real loss"

Post by willthrill81 »

Rosencrantz1 wrote: Wed Mar 18, 2020 11:19 am
willthrill81 wrote: Tue Mar 17, 2020 10:14 pm
jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm
diy60 wrote: Tue Mar 17, 2020 3:39 pm Years ago I inherited a file folder full of stock certificates. They were worthless when I inherited them and they are worthless now. Though nothing was ever sold or realized, the losses are real. Period.
Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
Where did I say that there is a difference between an unrealized loss and a paper loss? They are one and the same. But when most people use the term 'paper loss', they do so to convey the idea that they 'have not really lost anything', which is false.
I have no idea if this is true about "most people" - but, I can tell you it's absolutely not true about me. When I've used the defined term "paper loss", I could just as easily have said "my account is showing down about $200K" and then followed that up with "me? I'm not selling" (I guess the unrealized part of the equation). :beer

To be fair, you may be right about "most" people - I really don't know how others think about it. I've used the term in the way its definition is generally accepted in investment/accounting parlance.
By my way of thinking, the very use of the phrase 'only a paper loss' implies that it is less real than a realized loss.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

azanon wrote: Wed Mar 18, 2020 9:55 am
The myth - for clarification of this discussion - is that paper losses are not also REAL losses.
I have no idea what a real loss means. We are now just making up words to try and twist around some idea.

I propose that there is no one on this thread who thinks that a decrease in market valuation means that "no change whatsoever has occurred".
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

willthrill81 wrote: Wed Mar 18, 2020 11:23 am By my way of thinking, the very use of the phrase 'only a paper loss' implies that it is less real than a realized loss.
"Real" isn't a helpful word to use. A paper loss is better than a realized loss for the following reasons:

- The holder of a paper loss has not been forced into liquidation resulting in a realized loss.
- No taxable event has occurred

So, if someone says "it's only a paper loss", that's another way to say "Good news. I have enough liquid resources such that I am not forced into realizing my loss. I can cover my monetary needs in other ways. In addition, I am not an emotional wreck and my conscience has not forced me into taking a loss for emotional reasons".

Let's say that someone was 100% stocks and now needs $50k for an emergency. Would you agree that being forced into selling 50k right now, is worse than not having to do this? This is what makes it "only a paper loss".
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Re: Why do people say "its only on paper, its not a real loss"

Post by Rosencrantz1 »

willthrill81 wrote: Wed Mar 18, 2020 11:23 am
Rosencrantz1 wrote: Wed Mar 18, 2020 11:19 am
willthrill81 wrote: Tue Mar 17, 2020 10:14 pm
jdilla1107 wrote: Tue Mar 17, 2020 9:28 pm
willthrill81 wrote: Tue Mar 17, 2020 4:11 pm

Excellent example. I've used one very similar myself in trying to dispel the myth of 'paper losses'.
Please look up the definition of paper loss. It does not mean what you think it means. The discussion of this thread is literally BY DEFINITION a paper loss.

Paper Loss:
A loss on an investment that has not yet been realized. That is, a paper loss occurs when the current price of a security which is still owned by the holder is lower than the price the holder paid for it.

The above example, is one of bankruptcy, which involves realizing the loss. (by definition)
Where did I say that there is a difference between an unrealized loss and a paper loss? They are one and the same. But when most people use the term 'paper loss', they do so to convey the idea that they 'have not really lost anything', which is false.
I have no idea if this is true about "most people" - but, I can tell you it's absolutely not true about me. When I've used the defined term "paper loss", I could just as easily have said "my account is showing down about $200K" and then followed that up with "me? I'm not selling" (I guess the unrealized part of the equation). :beer

To be fair, you may be right about "most" people - I really don't know how others think about it. I've used the term in the way its definition is generally accepted in investment/accounting parlance.
By my way of thinking, the very use of the phrase 'only a paper loss' implies that it is less real than a realized loss.
Point taken.
Yeah... I suppose, in that context, it makes sense to interpret what an individual might be trying to say... In that case, maybe they are trying to perform the Jedi mind trick :sharebeer
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Re: Why do people say "its only on paper, its not a real loss"

Post by fortyofforty »

azanon wrote: Wed Mar 18, 2020 11:00 am
fortyofforty wrote: Wed Mar 18, 2020 10:13 am There are very few things I own, the value of which I can ascertain at least once per day, or minute by minute in most cases. My house? Nope, nobody is ringing the doorbell offering me varying prices every minute. The total value of stocks has decreased, significantly. However, until I convert to cash, in order to spend it on something else, I haven't locked in that loss, so I do consider it to be "only on paper", or something that doesn't matter concerning my immediate financial situation. Only spendable cash is locked into its current value, and even that varies based on inflation and the currency exchange rates (largely invisible, day to day).
Some of what you're saying, I wouldn't even disagree with, and I view paper losses as real losses. As long as you're willing to admit assets have fluctuating prices, and you can reasonably estimate that price at any given time, then I don't have any quarrels with what you just said. And it looks like, in so many words, that's what you're acknowledging.

But it's a strawman of sorts to suggest that because you can't assess, say, a house's value on a minute-by-minute basis, that it cannot be reasonably valued were you to hire a professional appraiser, or get a really rough estimate of its value from Zillow. I believe all the "rest of us" are saying is that your house has an approximate value at any given moment, that is not dependent in any way on whether or not you sell it or, using your terms, "lock it in".
I can in my mind have an estimate of my home's value. If you've ever tried to sell your home, you might come to find out that what you believe is the value is not what anyone else is willing to pay you. I experienced this firsthand. All the estimates, all the guesses, all the tax assessments, all the comparables meant nothing when it actually came time to find a buyer. What was my home worth? Not what I thought. Had I been getting real offers to buy it, minute by minute (as I do with my ETFs, or at least once a day with my mutual funds), I would have known the real value, not the paper value. In the end I didn't sell, I didn't lock in the paper loss, and the value has (probably) rebounded. But I'll never be sure until someone puts money into my account and I hand over the keys.

If it makes you feel any better, I similarly consider stock market gains to be "paper gains" until I sell and lock them in. Only when they become cash can I truly enjoy the value of my investments, whatever they may be. My house has likely appreciated, but I am in no way enjoying those paper gains because I am unable to spend any of it.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Abe »

It's just a way to differentiate between realized gain or loss. It is a loss; you just haven't locked it in. The term people use for that is "it's a paper loss" or "it's only on paper". But it is a loss. Your net worth has decreased by the amount of the loss.
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 fortyofforty »

Abe wrote: Wed Mar 18, 2020 5:37 pm It's just a way to differentiate between realized gain or loss. It is a loss; you just haven't locked it in. The term people use for that is "it's a paper loss" or "it's only on paper". But it is a loss. Your net worth has decreased by the amount of the loss.
Maybe it's easier to understand the psychology if you think of gains. One day the stock market goes up 8%. Do I feel much wealthier? Nope. Even if my portfolio goes up by high six figures that day. Why not? Because the next day it can drop again and wipe it all away. Up and down. Down and up. If you constantly measure your net wealth, you'll be whipsawed by these enormous moves in the market, both up and down. It's really all on paper. Sure, if you had to sell today, you'll take a bath. But if you don't have to sell, just ride it out and let the losses stay on paper instead of in your savings account.
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Re: Why do people say "its only on paper, its not a real loss"

Post by Blender »

willthrill81 wrote: Wed Mar 18, 2020 11:23 am By my way of thinking, the very use of the phrase 'only a paper loss' implies that it is less real than a realized loss.
It is less real. It's an unrealized loss. Hence the "real" part of realized vs. unrealized.
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Re: Why do people say "its only on paper, its not a real loss"

Post by tadamsmar »

Suppose you buy a stock certificate for $10 and put it in a box. Later, you take it out and sell it for $20 to buy some food and you eat the food.

Did you lose any money?
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Re: Why do people say "its only on paper, its not a real loss"

Post by Irenaeus »

Here is an excerpt from an investment guide I wrote for family members a few weeks ago:
A personal anecdote: I recall the stock market crash of 22 October 1987, Black Monday, when in that one day the DJIA fell 22.6%, the S&P 500 and Wilshire 5000 indices each dropped over 18% and the S&P 500 futures contract plunged 29%. I was working in [omitted] and one of my co-workers, who was in his late 20s or early 30s and had received a trust fund from wealthy relatives, got a call from his stockbroker (stockbrokers have since been rebranded as financial advisors; they should also be viewed as salespeople). My co-worker panicked and instructed the stockbroker to “sell, sell, sell.” Yet about two years later, the stock market had returned to the pre-crash level. By panicking and selling in a down market, my co-worker realized – that is, actualized - what otherwise might have been merely a loss on paper that he could have ridden out. And after such a sale at a loss, some bruised investors sit out of the market, miss its resurgence, and re-invest when the prices are high, effectively selling low and buying high.
I don't feel I wrote anything inaccurate or misleading. Now merely a loss on paper that he could have ridden out is not the same as it's only on paper; it's not a real loss. Perhaps we can re-phrase this idea of a paper loss as a devaluation. Does that resolve the dispute?
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Re: Why do people say "its only on paper, its not a real loss"

Post by fortyofforty »

Irenaeus wrote: Wed Mar 18, 2020 11:32 pm Here is an excerpt from an investment guide I wrote for family members a few weeks ago:
A personal anecdote: I recall the stock market crash of 22 October 1987, Black Monday, when in that one day the DJIA fell 22.6%, the S&P 500 and Wilshire 5000 indices each dropped over 18% and the S&P 500 futures contract plunged 29%. I was working in [omitted] and one of my co-workers, who was in his late 20s or early 30s and had received a trust fund from wealthy relatives, got a call from his stockbroker (stockbrokers have since been rebranded as financial advisors; they should also be viewed as salespeople). My co-worker panicked and instructed the stockbroker to “sell, sell, sell.” Yet about two years later, the stock market had returned to the pre-crash level. By panicking and selling in a down market, my co-worker realized – that is, actualized - what otherwise might have been merely a loss on paper that he could have ridden out. And after such a sale at a loss, some bruised investors sit out of the market, miss its resurgence, and re-invest when the prices are high, effectively selling low and buying high.
I don't feel I wrote anything inaccurate or misleading. Now merely a loss on paper that he could have ridden out is not the same as it's only on paper; it's not a real loss. Perhaps we can re-phrase this idea of a paper loss as a devaluation. Does that resolve the dispute?
You obviously haven't been on this board very long. :beer
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Re: Why do people say "its only on paper, its not a real loss"

Post by JackoC »

jdilla1107 wrote: Wed Mar 18, 2020 11:23 am
azanon wrote: Wed Mar 18, 2020 9:55 am
The myth - for clarification of this discussion - is that paper losses are not also REAL losses.
I have no idea what a real loss means. We are now just making up words to try and twist around some idea.

I propose that there is no one on this thread who thinks that a decrease in market valuation means that "no change whatsoever has occurred".
It's not whether people saying 'it's only a paper loss' think 'no change whatsoever has occurred'. The issue is whether there's any difference *at all*, *at this moment* in how much money you've lost on your stocks whether you decide at the next moment to sell them or not. There is *no* such difference, zero validity to the modifier 'only' in front of 'paper loss', which is what the thread is about, read the heading '*only* a paper loss'. And so though 'paper loss' is a common term it's one to avoid IMO like various misleading terms in finance, because too much associated with the completely wrong idea that 'you haven't lost anything till you sell' .
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Re: Why do people say "its only on paper, its not a real loss"

Post by jdilla1107 »

JackoC wrote: Thu Mar 19, 2020 9:35 am
jdilla1107 wrote: Wed Mar 18, 2020 11:23 am
azanon wrote: Wed Mar 18, 2020 9:55 am
The myth - for clarification of this discussion - is that paper losses are not also REAL losses.
I have no idea what a real loss means. We are now just making up words to try and twist around some idea.

I propose that there is no one on this thread who thinks that a decrease in market valuation means that "no change whatsoever has occurred".
It's not whether people saying 'it's only a paper loss' think 'no change whatsoever has occurred'. The issue is whether there's any difference *at all*, *at this moment* in how much money you've lost on your stocks whether you decide at the next moment to sell them or not. There is *no* such difference, zero validity to the modifier 'only' in front of 'paper loss', which is what the thread is about, read the heading '*only* a paper loss'. And so though 'paper loss' is a common term it's one to avoid IMO like various misleading terms in finance, because too much associated with the completely wrong idea that 'you haven't lost anything till you sell' .
Here is what I wrote to another poster:

A paper loss is better than a realized loss for the following reasons:

- The holder of a paper loss has not been forced into liquidation resulting in a realized loss.
- No taxable event has occurred

So, if someone says "it's only a paper loss", that's another way to say "Good news. I have enough liquid resources such that I am not forced into realizing my loss. I can cover my monetary needs in other ways. In addition, I am not an emotional wreck and my conscience has not forced me into taking a loss for emotional reasons".

Let's say that someone was 100% stocks and now needs $50k for an emergency. Would you agree that being forced into selling 50k right now, is worse than not having to do this? This is what makes it "only a paper loss".
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Re: Why do people say "its only on paper, its not a real loss"

Post by JackoC »

jdilla1107 wrote: Thu Mar 19, 2020 9:41 am
JackoC wrote: Thu Mar 19, 2020 9:35 am
jdilla1107 wrote: Wed Mar 18, 2020 11:23 am
azanon wrote: Wed Mar 18, 2020 9:55 am
The myth - for clarification of this discussion - is that paper losses are not also REAL losses.
I have no idea what a real loss means. We are now just making up words to try and twist around some idea.

I propose that there is no one on this thread who thinks that a decrease in market valuation means that "no change whatsoever has occurred".
It's not whether people saying 'it's only a paper loss' think 'no change whatsoever has occurred'. The issue is whether there's any difference *at all*, *at this moment* in how much money you've lost on your stocks whether you decide at the next moment to sell them or not. There is *no* such difference, zero validity to the modifier 'only' in front of 'paper loss', which is what the thread is about, read the heading '*only* a paper loss'. And so though 'paper loss' is a common term it's one to avoid IMO like various misleading terms in finance, because too much associated with the completely wrong idea that 'you haven't lost anything till you sell' .
Here is what I wrote to another poster:

A paper loss is better than a realized loss for the following reasons:

- The holder of a paper loss has not been forced into liquidation resulting in a realized loss.
- No taxable event has occurred

So, if someone says "it's only a paper loss", that's another way to say "Good news. I have enough liquid resources such that I am not forced into realizing my loss. I can cover my monetary needs in other ways. In addition, I am not an emotional wreck and my conscience has not forced me into taking a loss for emotional reasons".

Let's say that someone was 100% stocks and now needs $50k for an emergency. Would you agree that being forced into selling 50k right now, is worse than not having to do this? This is what makes it "only a paper loss".
I think that explanation just increases the confusion between *loss* and *position*. Which is the basic fallacy of '*only* a paper loss', confusing positioning with profit/loss. Ie. my current stock p/l YTD (down a $*#$*load), *now* is not a function of my stock position after now. Those are two different things. The fact I haven't changed my position (significantly, a little buying) doesn't create any 'only' with regard to my p/l as of now. Anything else is just a mistaken concept, again at best an irrational coping mechanism that might make some people not change their position, when they shouldn't, but they would if they looked at it fully realistically. A very two cheers at best argument for such concepts, 'obviously wrong, but might lead to better outcomes to believe it'.

Your example just extends that confusion by imposing the condition, which often not the case, that a liquidity need forced a change in position. That still does make current p/l a function of future position. Loss is *now*, what you do with the position at now + whatever time it takes to pull your account and start selling is the future. Selling now might increase your eventual return if you're lucky enough to time your re-entry (but on this forum we share the consensus that that's not likely, the 'waterclock' kind of effect where people do that when they can't take it anymore emotionally tends towards getting out and back in at the wrong times, worse than random outcome on avg). But whether you sell at now+secs does not affect your loss as of now. 'Only' a paper loss implies it does. And even if you're parsing more precisely to lay out a legitimate limited ground for 'only' a paper loss, you can't possibly say with a straight face that a lot of people don't do use that term as a crutch to pretend they haven't really lost money when the stock market tanks, which they have. IOW 'only' a paper loss is a tainted concept not worth you trying to save by circumscribing it more tightly to find some validity to 'only'. Basically, there's no 'only', and 'paper loss' itself tends to imply that non-existent 'only' in common use.
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Re: Why do people say "its only on paper, its not a real loss"

Post by as9 »

Since all of our investments are in tax-advantaged accounts that we have no intention of touching for a few decades, I view gains/losses similar to the value of our house (which we plan to stay in for a long time).

There are advantages to having both going up (refinancing, having to sell unexpectedly, needing emergency funds in a dire situation). So the losses are real in the sense that it's the present day value if we needed to sell, but for our situation it emotionally feels like paper losses because I believe both our investments and our house will appreciate in value (quite significantly) between now and the time we plan to sell.
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Re: Why do people say "its only on paper, its not a real loss"

Post by TropikThunder »

I guess this is the newest addition to the “unsolvable debates” list here on Bogleheads: dividends, international, and now paper losses. In each case one side says “this works for me” and the other side condescendingly calls them childish, delusional, and financially illiterate. It’s really kind of disappointing that debates decay so predictably, but at least this forum is moderated so the decay is limited.

It’s also interesting to me how most people here pick and choose which parts of the equation to apply their logic too, similar to international investing (does diversification and “buying the haystack” just refer to the US?). I’m in the paper loss camp, mainly because I’m no where near selling, and I don’t routinely calculate my net worth. I’m not any sort of finance professional, and I’m not required to prepare quarterly financial statements for my personal life, so all the “mark to market” and other accounting standards don’t apply to my personal life. I don’t check the market value of my house daily, and just because Vanguard does it for me with my stocks doesn’t make that information any more valuable or actionable.

All we're missing is a Bogle acolyte coming in to tell us what “Jack would do”.
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Re: Why do people say "its only on paper, its not a real loss"

Post by fortyofforty »

JackoC wrote: Thu Mar 19, 2020 10:01 am
jdilla1107 wrote: Thu Mar 19, 2020 9:41 am
JackoC wrote: Thu Mar 19, 2020 9:35 am
jdilla1107 wrote: Wed Mar 18, 2020 11:23 am
azanon wrote: Wed Mar 18, 2020 9:55 am
The myth - for clarification of this discussion - is that paper losses are not also REAL losses.
I have no idea what a real loss means. We are now just making up words to try and twist around some idea.

I propose that there is no one on this thread who thinks that a decrease in market valuation means that "no change whatsoever has occurred".
It's not whether people saying 'it's only a paper loss' think 'no change whatsoever has occurred'. The issue is whether there's any difference *at all*, *at this moment* in how much money you've lost on your stocks whether you decide at the next moment to sell them or not. There is *no* such difference, zero validity to the modifier 'only' in front of 'paper loss', which is what the thread is about, read the heading '*only* a paper loss'. And so though 'paper loss' is a common term it's one to avoid IMO like various misleading terms in finance, because too much associated with the completely wrong idea that 'you haven't lost anything till you sell' .
Here is what I wrote to another poster:

A paper loss is better than a realized loss for the following reasons:

- The holder of a paper loss has not been forced into liquidation resulting in a realized loss.
- No taxable event has occurred

So, if someone says "it's only a paper loss", that's another way to say "Good news. I have enough liquid resources such that I am not forced into realizing my loss. I can cover my monetary needs in other ways. In addition, I am not an emotional wreck and my conscience has not forced me into taking a loss for emotional reasons".

Let's say that someone was 100% stocks and now needs $50k for an emergency. Would you agree that being forced into selling 50k right now, is worse than not having to do this? This is what makes it "only a paper loss".
I think that explanation just increases the confusion between *loss* and *position*. Which is the basic fallacy of '*only* a paper loss', confusing positioning with profit/loss. Ie. my current stock p/l YTD (down a $*#$*load), *now* is not a function of my stock position after now. Those are two different things. The fact I haven't changed my position (significantly, a little buying) doesn't create any 'only' with regard to my p/l as of now. Anything else is just a mistaken concept, again at best an irrational coping mechanism that might make some people not change their position, when they shouldn't, but they would if they looked at it fully realistically. A very two cheers at best argument for such concepts, 'obviously wrong, but might lead to better outcomes to believe it'.

Your example just extends that confusion by imposing the condition, which often not the case, that a liquidity need forced a change in position. That still does make current p/l a function of future position. Loss is *now*, what you do with the position at now + whatever time it takes to pull your account and start selling is the future. Selling now might increase your eventual return if you're lucky enough to time your re-entry (but on this forum we share the consensus that that's not likely, the 'waterclock' kind of effect where people do that when they can't take it anymore emotionally tends towards getting out and back in at the wrong times, worse than random outcome on avg). But whether you sell at now+secs does not affect your loss as of now. 'Only' a paper loss implies it does. And even if you're parsing more precisely to lay out a legitimate limited ground for 'only' a paper loss, you can't possibly say with a straight face that a lot of people don't do use that term as a crutch to pretend they haven't really lost money when the stock market tanks, which they have. IOW 'only' a paper loss is a tainted concept not worth you trying to save by circumscribing it more tightly to find some validity to 'only'. Basically, there's no 'only', and 'paper loss' itself tends to imply that non-existent 'only' in common use.
I think it is actually far more valuable to think of the qualifier "only" as applying to the paper loss. It is also very valuable, perhaps even more so, to say you only have a "paper" gain.

The stock market drops by 10%. Too bad. You have a loss. A big loss. Maybe a six figure loss. You hold tight. It's a paper loss, because you didn't bail to cash. The market climbs by 10%. You have a big gain. Maybe a six figure gain. From the previous close, you're now up big. But it's a paper gain. You didn't jump into cash. The market falls again, by 10%. Another big loss. A paper loss. As long as you don't collapse the wave function by converting to cash, it doesn't really matter what the paper losses or paper gains are. If you don't have to sell, your life hasn't changed much except psychologically. As you get closer to the time when you will have to sell, you'll have to pay more attention because you will soon be locking in losses or gains.
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Re: Why do people say "its only on paper, its not a real loss"

Post by fortyofforty »

Jason Zweig, in a footnote in Benjamin Graham's The Intelligent Investor:
Yet even an elderly investor should not sell her stocks merely because they have gone down in price; that approach not only turns her paper losses into real ones but deprives her heirs of the potential to inherit those stocks at lower costs for tax purposes.
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Re: Why do people say "its only on paper, its not a real loss"

Post by RudyS »

The other side of the coin: whenever I look at my Vanguard statement, and tell DW "our assets are up to $XXX (and for years they kept rising), she tells me "it can go down too". That's just a way of saying "it's only on paper, it's not a real gain." Guess, right now, she's correct.
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