Do you still value the car at 50k or accept it's new value is 25k? Or does it only become worth 25k when you actually sell it? Until then it's value is still this mythical $50k purchase price even though that bears no relation to what you can buy or sell it for in the real world?
Of course, the value may go up in the future but that doesn't mean that when valued at current prices you are sitting on a big loss.
Do you really work in finance and don't understand the concept of mark to market?!
mark to market is an accounting concept. And a car is a terrible example because cars depreciate and typically fall in value, while property fluctuates up and down so Mat's example is perfectly feasible.
Until you sell an asset, any losses or gains are only paper losses and gains. If the asset has a clear lifetime and depreciates, then yes, I agree with you, the value falls over time even if you do not sell it.
But investments - like property or shares, which fluctuate only turn into real money when you sell them - anything else is just an accounting treatment or for "information purposes". It's not real until you sell.
MtoM is an accounting principle.
I buy my house in 2005 for 3 Mio, in 2006 it is "worth" 2.8 Mio but I sell it in 2007 for 5Mio, sorry but I made 2 Mio (without deducting interests, rates...of course)
Car depreciate (aside for a few exceptionnal cars)
Last edited by Mat; 07-03-2011 at 10:19 AM.
You maybe sittling on a loss but if your stock or property goes up again an you sell higher than you have bought, you are REALISING A GAIN, not matter if 2 months before you were SITTING ON A LOSS.
In 2007 you have made a 2m gain
You can't pretend your position is not loss making in 2006 just because you don't sell it then!
Losses are reversible, just like gains but you can't claim "you don't make a loss unless you sell it" because that is patently absurd.
What counts is that I made a REALISED gain at the end.
I have never changed my way of thinking, the main difference between you and me, is that you are always categorical in your posts.