Buying and Selling

Stock IIStock II

Paper Gain vs.

Real Gain

� Very Important Note:

Note:

� The appreciation or depreciation in

the value of a stock is not realized

unless the stock is sold.unless the stock is sold.

� Until you actually sell the stock the

appreciation or depreciation in value

is not actual, but rather on paper.

Example 1:

� You bought shares of Apple Inc. for $30 per

share in 1990.

� In 2010 the market value of Apple shares is

$25 per share.$25 per share.

$30

$25

Example 1, cont’d

� If you do not actually sell your shares, then

$25 per share

(current value)

$30 per share

(price you paid)

$5 depreciation

(loss in value)- =

� If you do not actually sell your shares, then

this will be considered paper loss.

� However, if you do sell your shares then you

will actually lose $5.

Example 2:

� You bought shares of Apple Inc. for $20 per

share in 1990.

� In 2010 the market value of Apple shares is

$30 per share.$30 per share.

$20

$30

Example 2, cont’d

� If you do not actually sell your shares, then

$30 per share

(current value)

$20 per share

(price you paid)

$10 appreciation

(gain in value)- =

� If you do not actually sell your shares, then

this will be considered paper gain.

� However, if you do sell your shares then you

will actually make a profit of $5.

� This concept is very important for YOU to

understand.