My question was inspired by this article. Relevant quotes below:
Fidelity, the only fund manager to have invested in the four-year-old company [Snapchat] best known for disappearing photos, wrote down the value of its stake by 25 per cent in the third quarter, according to data from investment research firm Morningstar.
In this example, if Fidelity had actually sold their stake for 25% less than they paid for it, that would be a loss that could be written off against taxes (hence the term "write-off"). But they're still holding on to it. So two questions:
- What does writing down the valuation here imply? What does it mean to Fidelity and Snapchat in real terms, given that no trading is going on?
- What happens if this holding actually rises in valuation later? And what if they sell it later? What basis are profits (or losses) calculated on?