Mark-To-Market Losses

A few ways to think about this term. Say you have inventory that's liquid and sold often. Like, a barrel of oil. Or a million of them that cost you $50 each. Peace broke out throughout the world, and Venezuela got its act together. So oil prices plummeted. Barrels now sell for $35 each. You carry a mark-to-market accounting system, so you need to write down the value of that $50 million in oil stores to reflect current market prices of $35 million.

You might have also carried everything at cost, or book value...or at "lower of cost or market" (which is what you did here in marking them down). So that's one application of the term. Accountants wrestle with it when naked and covered with salad oil all the time.

Mark-to-market losses also come from investments that aren't naturally marked that way. Like...if DIS drops from $118 a share to $102, and it's inside a mutual fund, then the drop in value of those shares will be reflected in a dropped NAV price.

But mutual funds usually have accommodation to buy up to, say, 5% of their funds as private companies. Sometimes those companies do well, manage through an IPO, and then become liquidly traded public shares like DIS. But many times they don't. So a given investment of $20 million in a private company that was supposed to cure hair loss in angry men...only grows hair on their knuckles. Still a market worthy of pursuit, but that $20 million is clearly worth way less when the test results come out.

So the fund must mark-to-market the losses of that investment. And they just guess at the right number. No hard and fast rules here. Someone mumbles, "It has to be a third of the market size now," so starting with a markdown to a value of $6 million might be a good place to start discussion, anyway. At Shmoop we hope to be offering free samples of this stuff in a few years. Knuckles up.