Does the value of your stock change with the price?

seacaitch

NewKidOnTheBlock wrote: »

So just to be absolutely certain I understand what you're saying because I need to be sure.

If you buy £5000 worth of shares and the price drops 5% your shares are still worth £5000 as long as you don't sell them. So you can hold onto them until the price rises by 3% for example and then sell them for £5000+3% = £5150 rather than (£5000 - 5%) + (3%) = £4982.5

The "intrinsic value" you attribute to your shares is entirely up to you. In your head you can attribute any value you like to them.
But if you want to mark them to market, ie. want to know what someone else will pay you for them at this instant in time, then that's what the current stock market price indicates.

NB Effective investment strategies are often about identifying securities whose intrinsic value is greater than the price currently attributed by the market, and then waiting to see if/when the market comes around to your way of thinking. Ideal holdings are those where the intrinsic value grows such that it remains 1-step ahead of the current market value, allowing very long term (compounding) growth positions to be held, while you sit there doing nothing and experiencing zero trading costs.

bowlhead99

NewKidOnTheBlock wrote: »

So just to be absolutely certain I understand what you're saying because I need to be sure.

If you buy £5000 worth of shares and the price drops 5% your shares are still worth £5000 as long as you don't sell them. So you can hold onto them until the price rises by 3% for example and then sell them for £5000+3% = £5150 rather than (£5000 - 5%) + (3%) = £4982.5

No. If you buy shares for £5000 (say 5000 shares at £1 each), they are only "worth" £5000 while the price is £1 each.

If something happens so that the market is only willing to pay £0.95 for each share, then the whole lot is "worth" £4750. In other words IF you choose to sell at that point you will only get £4750. But you don't HAVE to sell them all for £4750 there and then, you can keep the 5000 individual shares, and try to sell some or all of them at £1 each or £1.50 each or £5 each if you keep them long enough that someone is willing to buy them off you at those prices instead of 95p each.

Of course, You might have to wait a week or a month or twenty years to get those prices. Or the value of the company might go down and down and down to 80p or 60p or 20p and you'll really wish you had sold them all for 95p each instead.

But let's say that you bought the shares towards the end of the day on Monday for 100p. On Tuesday morning, the price falls 5% to 95p. You have not technically 'lost' anything because you still own 5000 shares in the company, and you know it's just a temporary price change, and you hope they'll one day be worth millions. But they are really worth 95p (£4750 total) in terms of what someone would pay for them that day. The websites will say they are down 5% so far on Tuesday, which is being compared to the Monday end-of-day price.

Then on Tuesday afternoon the price rockets up to 103p. The website updates to say the shares are now up 3% from Monday price instead of down 5% from Monday price. At that point, you could sell them for £5150. You can choose to sell at whatever price is being offered. Or you can choose to keep holding them for longer. Perhaps you don't sell, and by end of day Tuesday they are back down to 95p and showing a 5% loss against Monday's price again.

Then you wake up at 10am Wednesday and the price is 97.85p. The websites are showing that the current price is a 3% rise from Tuesday's closing price. It's not 3% more than what you paid on Monday, it's just 3% more than end of day Tuesday. So you are, on paper, 3% better off than you were on Tuesday afternoon because you could now sell all the shares for £4892.50 instead of £4750.

In your head, you still haven't made or lost anything because it's only some immaterial daily movement and you still own 5000 shares in the company and you still hope they'll one day be worth millions. But basically you ARE better off than you were on Tuesday afternoon, although you are NOT as well off as you were on Tuesday morning when they could have been sold for 103p and you are NOT as well off as you were on Monday when you had £5000 cash instead of shares that can now only be sold for £4892.50.

Does that help ?!

NewKidOnTheBlock_2

bowlhead99 wrote: »

Does that help ?!

Perfect explanation thanks very much for taking the time to explain.

sicker

NewKid, just out of interest how do you intend to purchase your shares? I have a shares portfolio held by a broker and if I were to purchase £5000 worth of a share it would cost me £12.50 commission plus £25 stamp duty. On selling same stock it would cost me £12.50 commission (no stamp duty). I fear if you are new to this your commission costs may be much, much higher.
Good luck in your trading :-)

NewKidOnTheBlock_2

sicker wrote: »

NewKid, just out of interest how do you intend to purchase your shares? I have a shares portfolio held by a broker and if I were to purchase £5000 worth of a share it would cost me £12.50 commission plus £25 stamp duty. On selling same stock it would cost me £12.50 commission (no stamp duty). I fear if you are new to this your commission costs may be much, much higher.
Good luck in your trading :-)

I'm not buying anything. I'm simply looking at the markets and figuring out how it all works. I understand that most fund supermarkets charge a fee per trade which has to be taken into account when calculating your returns

I'm just using random figures as examples to illustrate my point.

Biggles

NKOTB, you're still looking at 'Day Trading', aren't you, as you posted on a different thread?

You should really spend some time getting used to 'Investing' and understanding how shares work. The fact that you are asking these questions show that you shouldn't be risking your money yet.

NewKidOnTheBlock_2

Biggles wrote: »

NKOTB, you're still looking at 'Day Trading', aren't you, as you posted on a different thread?

You should really spend some time getting used to 'Investing' and understanding how shares work. The fact that you are asking these questions show that you shouldn't be risking your money yet.

Which is why I'm not

I'm simply gathering information, from investment websites, guides and forums. It will be weeks, perhaps months yet before I invest / trade in anything.

atush

NewKidOnTheBlock wrote: »

So just to be absolutely certain I understand what you're saying because I need to be sure.

If you buy £5000 worth of shares and the price drops 5% your shares are still worth £5000 as long as you don't sell them. So you can hold onto them until the price rises by 3% for example and then sell them for £5000+3% = £5150 rather than (£5000 - 5%) + (3%) = £4982.5

No, you buy x units of shares for 5000, and the price of said shares goes up or down.

If you dont sell them, and they are down in price, they are still 'worth' less. This is a Loss. but a loss is not certain until you sell. So if you dont sell, the loss is only on paper.

atush

NewKidOnTheBlock wrote: »

Which is why I'm not

I'm simply gathering information, from investment websites, guides and forums. It will be weeks, perhaps months yet before I invest / trade in anything.

Good to hear you are not.

but look at months/years until you have more time to learn.

jimjames

NewKidOnTheBlock wrote: »

Ok so you can easily hold onto your shares and see if the market picks up... So say the share price is £500 and it drops to £490, £480, £460 but then by 4pm the price rose to £510 and you sell you'd make profit.

Thanks for clearing it up. Yes the percentage thing was really confusing me.

Effectively it's no different to buying a house except the price of that isn't available every second of the day. The value is only important when you sell, what it's worth at other times doesn't matter as it could be anything in between.