When I own an asset, it is also known as being LONG an asset.  If I buy a stock, I am long the stock.  Assets can take many forms, a few examples are stocks, bonds, real estate, commodities, automobiles, etc.

When you purchase an asset, there are three possibilities that can happen in the future.
1. The asset can appreciate, meaning you will be able to sell it for more than you purchased it. This will result in a gain, and depending on the type of account it is held in, you may owe taxes on the gain.  These are the assets that we want to own.
2. The asset can retain its value, it neither appreciates nor depreciates. You will be able to sell this asset in the future for the same amount that you paid for it.
3. The asset can depreciate, meaning that when you sell it in the future, you will sell it for less than what you paid for it.  This will result in a loss, and depending on the type of account it is is held in, you may have a loss to claim on taxes.  Who would purchase an asset that depreciates?  Every adult that I know owns at least one depreciating asset……their car.

This is a risk/return graph for the owning an asset, I will use Apple on February 6, 2009 for this example.

 

Apple as of Februart 6, 2009

Apple as of Februart 6, 2009

As you can see, at any price lower than the purchase price of $99.72 (the closing price on February 6, 2009), you will incur a loss.  At any price above $99.72, you will have a gain, and at $99.72 this will be an even trade.

I have simplified this example, please remember that some stocks will have a dividend, stock splits, etc. that will affect this calculation.  For example, if you were to receive a dividend, it could be argued that this reduces your cost.  Please also remember that time value can be a factor in the calculation.

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