5 ms·

> Both are measures of very different things, and both are very different to actual money. I don't really agree with you. GDP measures the value of goods and

> Both are measures of very different things, and both are very different to actual money. I don't really agree with you. GDP measures the value of goods and services produced by a country over a specific timeframe. Market cap (in this context) measures the value of all companies listed in the stock exchange. Both are ways to measure an economy, and both are measured in units of money. What's the difference between money and "actual money"?

oli5679 11y ago
GDP is a flow (depends on our arbitrary convention of splitting time into years). Market cap is a stock. Comparing one to the other is like comparing a bathtub that holds 100 litres to a hosepipe that discharges 1 litre per minute (or is that 60 litres / hour?).
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ars 11y ago
> What's the difference between money and "actual money"? If I buy something from you for $10, and sell it to someone for $10 the GDP goes up by $20. If on the other hand you sell it to someone for $10 the GDP goes up by $10 instead. The value of money + value of tangible goods is the same in both cases, but the GDP is not. They measure different things.
mamon 11y ago
Here is some enlightening story: Tourist walks through some distant mountain village and meets the villager shouting "My dog is for sale". So the tourist asks "How much for your dog?" "$1 million", villager replies. Tourist just sighs and continues his walk. Later the same day tourist is coming back. He meets the same villager, so he asks: "Did you sell your dog?" "Yes,to my neighbor, for $1 million" "Really? And he paid in cash?" "No, he gave me two cats, but they are $500.000 each" The market cap valuation works in exactly the same way.
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- robwilliams 11y ago
  Doesn't that just prove that 1 dog = 2 cats and not that anyone was actually willing to pay $1 million for the dog? People are spending real money, that they could equally well as spend on other things, on stocks - they're not just trading stocks, correct? The man in your story couldn't actually sell the dog to someone for $1 million, but people who own stock can sell for cold cash. Or am I wrong?
  - adventured 11y ago
    You're correct. There's no actual basis validating anything on the order of $1 million for the two cats. That's the flaw in why the parent's example doesn't work, it never actually meets reality in any way. Market valuations don't only exist in theory. Market caps for eg public companies are generally given legitimacy through trading, routine liquidity, auditing of financials, and dozens of other processes and regulations that companies must conform to. You can sell your Microsoft stock for a very well known amount of dollars, under very well known terms, essentially any time you want during market hours; you can never sell those cats for $500,000. The difference between me claiming my right shoe is worth $50 billion, and owning all of Uber's stock and having that be worth $50 billion? People with a lot of money, and a lot of reputation, deciding that Uber is worth $50 billion, after typically having put their money where their mouth is and investing. To say nothing of Uber having a real business (meaning they can raise debt, have credit ratings, sales, cash flow, operating projections, et al), having a value that the IRS or an auditing firm or investors can actually assess, and so on. One is verifiable to some large degree, the other can never be anything more than an absurdity - I can very likely sell my Uber stock for a lot of value, even if I take a big discount; I can never sell my right shoe at even a 99.99% discount to the $50 billion.
  - ncallaway 11y ago
    For small trades on the public market yes, you can trade for cash at approximately the price listed on the exchange at that moment in time. If Bill Gates wanted to liquidate his Microsoft stock, though, it's unlikely that his sale price would match the exchange. Once you get into trades of a significant portion of the company, there's not enough guaranteed to be enough liquidity at price listed on the exchanges.

oli5679 11y ago

GDP is a flow (depends on our arbitrary convention of splitting time into years). Market cap is a stock. Comparing one to the other is like comparing a bathtub that holds 100 litres to a hosepipe that discharges 1 litre per minute (or is that 60 litres / hour?).

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ars 11y ago

> What's the difference between money and "actual money"? If I buy something from you for $10, and sell it to someone for $10 the GDP goes up by $20. If on the other hand you sell it to someone for $10 the GDP goes up by $10 instead. The value of money + value of tangible goods is the same in both cases, but the GDP is not. They measure different things.

mamon 11y ago

Here is some enlightening story: Tourist walks through some distant mountain village and meets the villager shouting "My dog is for sale". So the tourist asks "How much for your dog?" "$1 million", villager replies. Tourist just sighs and continues his walk. Later the same day tourist is coming back. He meets the same villager, so he asks: "Did you sell your dog?" "Yes,to my neighbor, for $1 million" "Really? And he paid in cash?" "No, he gave me two cats, but they are $500.000 each" The market cap valuation works in exactly the same way.

deleted 11y ago
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robwilliams 11y ago
Doesn't that just prove that 1 dog = 2 cats and not that anyone was actually willing to pay $1 million for the dog? People are spending real money, that they could equally well as spend on other things, on stocks - they're not just trading stocks, correct? The man in your story couldn't actually sell the dog to someone for $1 million, but people who own stock can sell for cold cash. Or am I wrong?
- adventured 11y ago
  You're correct. There's no actual basis validating anything on the order of $1 million for the two cats. That's the flaw in why the parent's example doesn't work, it never actually meets reality in any way. Market valuations don't only exist in theory. Market caps for eg public companies are generally given legitimacy through trading, routine liquidity, auditing of financials, and dozens of other processes and regulations that companies must conform to. You can sell your Microsoft stock for a very well known amount of dollars, under very well known terms, essentially any time you want during market hours; you can never sell those cats for $500,000. The difference between me claiming my right shoe is worth $50 billion, and owning all of Uber's stock and having that be worth $50 billion? People with a lot of money, and a lot of reputation, deciding that Uber is worth $50 billion, after typically having put their money where their mouth is and investing. To say nothing of Uber having a real business (meaning they can raise debt, have credit ratings, sales, cash flow, operating projections, et al), having a value that the IRS or an auditing firm or investors can actually assess, and so on. One is verifiable to some large degree, the other can never be anything more than an absurdity - I can very likely sell my Uber stock for a lot of value, even if I take a big discount; I can never sell my right shoe at even a 99.99% discount to the $50 billion.
- ncallaway 11y ago
  For small trades on the public market yes, you can trade for cash at approximately the price listed on the exchange at that moment in time. If Bill Gates wanted to liquidate his Microsoft stock, though, it's unlikely that his sale price would match the exchange. Once you get into trades of a significant portion of the company, there's not enough guaranteed to be enough liquidity at price listed on the exchanges.