What Do Socks and Stocks Have in Common?
When the stock market plummets, where does the value of your holdings actually go? This article from Investopedia explains it well.
Stocks, like money itself, have an explicit value and an implicit value. Back in the day, when currencies like shells and salt fell out of fashion, it was their implicit value that plummeted; their usefulness didn’t change. Similarly, in a market panic, a stock’s value may simply vanish — like your socks in the dryer. (Keep this in mind when the stock market starts to rise, for that value too is as implicit as a barnful of salt.)
Stocks and currency are, of course, not the only things heavily dependent on implicit value. Think about diamonds, for one: why, exactly, are they so expensive?
A far humbler example but one that is closer to home (for me at least) is a book. When a book that you’re dying to read is published, you might be happy to shell out $25 on the spot. But for everyone who doesn’t buy the book, it has a far smaller implicit value. If demand is low enough, that same book might end up for sale for $1 on the street in a matter of months. At that price, it is probably worth it for just about anyone, for although this asset is usually overlooked, a hardcover book — held firmly, spine out — makes a fine weapon.