Final answer:
You do not realize a financial loss in the stock market until you sell your stocks for less than you paid for them, which is generally true. However, unrealized losses can still impact your investment. When trading stocks, money exchanges hands between individuals, and the company originally issuing the stocks does not receive any proceeds from such transactions.
Step-by-step explanation:
The statement that you do not actually lose money in the stock market unless you hit "sell" when the market is down is generally true. This is because paper losses are not realized until a transaction is made to sell the stocks at a lower price than they were purchased.
However, it's important to consider that even if you do not sell, there can be other real effects of a market downturn, such as a bear market, where stock prices remain stagnant or decrease. Additionally, although financial investors often cannot consistently outguess the market, and historical data shows that many mutual funds don't beat the market average, the process of buying and selling stocks itself involves transferring ownership between individuals, not providing a financial return to the company whose stocks are being traded, similar to buying a house from its current owner.