Comment on $1.8 trillion was wiped out from the US stock market yesterday, where did it go?
Aceticon@lemmy.dbzer0.com 1 week ago
There are two massive mathematical assumptions to determine the “value” of the stock market:
- The price of a stock of a company times the number of stocks of that company is the value of that company
- The price of all stocks of a company is equal to the price for which a stock of the company was last traded (so, a simple linear extrapolation)
It seems clear to me that one or both of those are in fact wrong and do not represent reality.
Mercer@lemmy.zip 1 week ago
I mean it is an approximation, repeatedly it has been shown that if another company wants to buy a publicly listed company they usually have to pay a premium to the market value = current stock price * number of shares so if anything that can be off by a bit more or less but is generally accurate, the main exemption to this being when a company has a very low float i.e SpaceX which only has 5% of its equity publicly tradable. Your second point is not typically what industry uses, usually we would use a optimized calculation between the current active highest bid and lowest offer. Your third point is abitrary, all things in our society are “valued” in an economic sense, by currency units of your choosing. There is often a discrepancy between public good and company value, but that is how people work. Gold was more valuable than food for peasants during feudal times or in USSR so it isn’t just Capitalism that makes this happen
Aceticon@lemmy.dbzer0.com 1 week ago
My point is that it’s a horrible approximation, especially for things like “growth” stocks and during market bubbles.
Further, companies buying other companies don’t purchase them for the “value” of that company, they purchase them for the amount of money that those who own that company want to part with their share of the company. This is all over the place and even for the same person value widely at different points in time - people can and do (it’s just good business sense) demand as much money for their stocks as they can get away with meaning that the amount paid is not necessarily the amount the company is worth.
As for your response to my 3rd point, I don’t think I’ve explained it correctly - my point is that the “value” of a company is often in things which aren’t easily quantified in money (or gold, or whatever currency token), something especially bad in “growth” “tech” stocks because there’s a double problem that to find a monetary expression of the value of the company you need to find a money value of “intellectual property” (which Tech companies are generally heavy on, much more so than capital assets which are far easier to value) which is notoriously hard and all over the place and, worse, find a money value for future market prospects and profitability (because they’re “growth” stocks, so their value is not on today’s market share and revenues for their products and services) which is even more full of la-la-land wishful thinking pulled-out-of-somebody’s ass valuations than intellectual property.
So my 3rd point isn’t about that it’s somehow wrong to translate the value of a company into monetary units, it’s that said conversion is another source of error with an error amount which can vary a lot between companies and be massive in some cases.