The markets did a nosedive and exchange traded funds (ETFs) plunged along with it. But where did all that money go?

What we’ve seen in the markets lately is not so much lost money, but rather, lost value. It’s not as though mounds of cash were there one day, but can’t be located the next.

Investopedia explains that regardless of whether the market is in bull (appreciating) or bear (depreciating) mode, supply and demand drive the price of stocks, and fluctuations in stock prices determine whether you make money or lose it.

People hate to lose. Some can stomach it better than others, but it’s a point of investing that causes many investors to hang on for far longer than they ought to. We hear from investors all the time who say things like, “I can’t sell, because then I’ll take the loss. If I haven’t realized the loss, it’s not really a loss.”

But you’ve lost whether you’ve sold or not. Hanging on has you losing on two fronts: you’re losing in your current position, and you’re losing time in which you could be making money in other positions.

The stock market is dual in nature, with the two parts that make up a stock’s market value being the implicit and explicit value. But you see, without explicit value, implicit value would not exist: investors’ interpretation of how well a company will make use of its explicit value is the force behind implicit value.

In a bull market, there’s an overall positive perception of the market’s ability to both continued to produce and create. This perception wouldn’t exist if there weren’t evidence that something is either being or will be created. In a bear market, the opposite happens.

So, call the money dissappearance what you will, it all depends upon market perception and what investors deem valuable or not.

Instead of hanging onto losing long-term bets for dear life and hoping against hope for a rebound, have a stop loss and let those losing positions go. Then take that cash and use it to find other opportunities in the markets.

Tags: ETF 101, Trend Following