12 ms·

The Race to a Trillion

123 points by uptown 9y ago

anovikov 9y ago
The 17-18 century companies are of course not adjusted by inflation, they are adjusted by nominal GDP, i.e. as a fraction of the worldwide or their host country GDP. $7.9T in 1617 means about 20-30 billion UK pounds of the era, which is an absurd amount of money, much more than the total worth of all assets in the world at the time.
- adventured 9y ago
  The same absurd premise that causes people to think eg Rockefeller's peak wealth adjusted should be more like $400 or $500 billion today (when in fact it would be closer to ~$30 billion using an inflation adjustment from the early 1900s).
  - anovikov 9y ago
    But in a way such comparison makes sense. It shows how much weight a company or a person had in the world or society of the day.
dagaci 9y ago
Interestingly amzn, goog seem to be doing this on much lower volume than the competition https://finance.yahoo.com/quotes/AAPL,MSFT,ORCL,GOOG,INTC,QCOM,AMZN,CSCO/view/v1 https://finance.yahoo.com/quotes/AAPL,MSFT,ORCL,GOOG,INTC,QC...
- encoderer 9y ago
  I haven’t checked the numbers but those stocks trade 5-7x higher so it makes sense you would see lower volume. Multiply by price to see size of market. Or am I misunderstanding?
- petra 9y ago
  Considering Google, do you guys(and gals) think that Their moonshot factory and the businesses it created is factored in the price ? or that the stock market isn't good at factoring things at such early stage, but if we have good reason to believe that they'll do well in that area, Google is a good investment ?
  - xkjkls 9y ago
    For the most part, Google's moonshot business have been a negative value to the firm. They've poured billions of capital into a number of these businesses without anything demonstrable to show for it. If you think that the future might be different in that regard, then Google is probably undervalued to you. But keep in mind that things Google is doing in it's moonshot projects, while they generate alot of press, might not generate alot of cash. Interesting != Valuable.
- xkjkls 9y ago
  The Alphabet volume is split between two tickers, GOOG and GOOGL.
thisisit 9y ago
It is telling that 3 out of 4 of the trillion dollar companies are actually oil companies. Just goes to show how dependent we are on the fossil fuel.
- uptown 9y ago
  Oil is part of the composition of so many products. It's also still an essential component to moving things around the planet. So when you decide to have that burger whose ingredients were was transported using gasoline cooked by a staff who drove to work, and the bottled water whose plastic bottle was made from oil and transported with gasoline, a percentage of the money you paid for those items slides into the revenue stream of oil companies. When you have an industry which is able to shave off a percentage of the vast majority of products moved, sold, and consumed in the world you've got a huge financial advantage.
  - mobilefriendly 9y ago
    Plus it is extremely capital intensive to build refineries and offshore oil rigs, there are some economic returns for scale.
  - Robotbeat 9y ago
    Most of those things can be electrified. Even plastics could be electrified (i.e. use electrolysis to produce hydrogen from water and electricity, Sabatier reaction to combine that hydrogen and CO2 into methane, make the methane into various products. Or use electrolysis on the CO2 to make CO and combine that with hydrogen to make methanol and then polypropylene, or just use the Fischer Tropsch reaction to produce synthetic oil from hydrogen and CO as a kind of drop-in replacement for fossil fuels), although I'd bet that we'll just use oil due to the large inefficiencies involved. So long term, the use for oil won't be for transport (or ought not to be) but for materials.
    - roenxi 9y ago
      I'm pretty happy to accept that, theoretically, any form of energy could be substituted for any other form. So sure, you can swap electricity in for oil. That doesn't change the present state though, which is that oil is linked to pretty much everything. And it really doesn't say anything about the economics of the situation. Batteries can store energy for use on demand, but nowhere near as well as fossil fuels. In the short term, I think the difference is something more than an order of magnitude (~1Mj/kg batteries vs >40MJ/kg fossil fuels; I don't feel like looking up per volume numbers but I imagine I'd see the same gap thing).
zeveb 9y ago
I have a pet theory that we've been systematically under-estimating inflation for the past many years, and that all these sky-high market caps are really the result of the dollar not being worth as much as we all think. Don't really have numbers behind it, other than things like a 12-pack of craft beer almost doubling over the past decade.
- dnadler 9y ago
  > other than things like a 12-pack of craft beer almost doubling over the past decade That's the thing about inflation, you need to look at a large basket of goods to estimate it. Different people feel price increases differently depending on what they buy. It's the aggregate number that matters at the end of the day.
  - deleted 9y ago
    [deleted]
  - opportune 9y ago
    Right. Commodity resources have pretty much universally decreased in price (relative to average income) as countries develop. The same can not be said for other areas such as housing and medical care. In fact the government's refusal to incorporate housing costs into conventional CPI calculations has been widely criticized as under-estimating inflation. As current official inflation metrics indicate that median incomes have stagnated over the past couple decades, this would suggest that they have in fact fallen. That's why life seems tougher now even though things like food and cheap plastic toys are cheaper than ever However, a decent counterargument is that since rents are already incorporated into CPI, adding housing prices would be a confounding variable more susceptible to different macroeconomic trends such as equity market inflations. Still, since a sizable percentage of people own houses and an even greater percentage want to own one in the future, I think it's a reasonable metric to add
    - maxerickson 9y ago
      Housing is something like 1/3 of CPI.
jedberg 9y ago
I thought PetroChina was the first Trillion Dollar Comapny(tm)?
- jperras 9y ago
  If you read the article, it mentions that it would be the first US-based company to hit the four comma club. They even point out that the East India Trading company, when adjusted for inflation, was a 7.9T company.
  - jedberg 9y ago
    Ah I didn't notice their "US Based" qualifier.
  - garmaine 9y ago
    Which still wouldn't be true because Standard Oil, adjusted for inflation, was >$1Tn.
    - larkeith 9y ago
      Standard Oil is mentioned in the article.
      - garmaine 9y ago
        Yes, defeating the claim of the article.
  - TheCoelacanth 9y ago
    It's not really adjusted for inflation, though. It's adjusted for what percentage of the world's GDP at the time it constituted. That's a metric that favors older companies because there was a much smaller number of companies at the time.
- dopamean 9y ago
  I think people don't like counting it because of the way it was achieved. IIRC they only floated a super tiny percentage of their stock and so the overall valuation was inflated. It felt then a little the way cryptocurrency market capitalizations feel now.
cryptoz 9y ago
> we might never again see a giant stock move like Amazon has over the past 92 days. Why not? Why such a pessimistic assumption of decline in ability to quickly create value for the rest of time?
- mempko 9y ago
  global warming
traviswingo 9y ago
We should be careful with these types of articles and claims. Apple is trading at 18x earnings while Amazon is trading at 250x, as of this comment. Lower P/E ratios point to sturdier valuations in the market. In other words, AAPL is ACTUALLY worth its valuation in the eyes of the market, whereas AMZN would be dumped quickly should something spook investors. Just be careful on these rapid upticks, and be prepared to bail out if you went in too aggressively.
- curuinor 9y ago
  I like how 18x P/E is low nowadays!
  - hcnews 9y ago
    This is because some of the successful businesses have learnt to build on their existing success. This is an evolution of previous generation of successful companies which mainly relied on working on one main idea. Now its become easier to built up on the infrastructure provided by previous generation's success. Or atleast that's what my current thought is regarding this topic.
    - opportune 9y ago
      It's really shuffling money from earnings into expanding an existing company is tax-advantaged. Let's say I own 100% of ACME, which made a $100 profit last year. Rather than receive that money as dividends and then reinvest it, which causes the money to be taxed now and for it to possibly be taxed at a higher rate than capital gains, I reinvest that money into ACME. This has the effect of deferring taxation on that profit and allows it to be taxed at the same rate as capital gains at a later date
  - xkjkls 9y ago
    Price to Earnings less cash is probably a better metric anyways. If you take away the ~250 billion in cash that Apple has on their balance sheet, you end up with a P/E of around 12-13, which is a little below average historically.
paulpauper 9y ago
Amazon, google and Facebook..three companies to rule the world. They have been great investments I predict they will remain so for the foreseeable future. They won't suffer from the same sort of diminishing growth and loss of market share that afflicted other large companies. Google dominates mobile advertising and search; Facebook also dominates mobile advertising and social networking, and Amazon dominates commerce and business/e-commerce infrastructure. Microsoft is also a good investment.
- lostlogin 9y ago
  How will Facebook avoid lower growth? Or are you meaning financials rather than users? They just had a quarter that had some concerning metrics (usage among young people for example) and are surely up against world population limits at some point.
  - paulpauper 9y ago
    They own Instagram, in which in retrospect was a huge success. The financial growth comes from branching out into different industries and extracting more value from existing users.
    - exalsy 9y ago
      Exactly, it's worrying to think of how powerful Facebook could have been if they had successfully bought Snapchat back in 2013 like they tried to do; its usage amongst young people is very high and they'd have easily dominated every age group in terms of social media.
nabla9 9y ago
Again, history does not repeat but it rhymes. Dot-com bubble had similar group of valuation leaders whose price would not collapse in enforceable future. The Four Horseman of Tech in 2000 were Microsoft, Dell, Cisco and Intel. Their combined market cap increased by 94% in few months before the bubble crashed. P/E values were MS 60, Intel 50, Cisco 200. There was no reason to assume that these companies would not be important in 20 years from now. The stock price of __good__ tech companies will not collapse because they stop making profits, gaining market share or growing. It collapses because they are overvalued. People simply refuse to understand that great companies can't escape massive over-valuation just because they are great companies. Amazon was a great company in 2000, but it took over 10 years before it's stock valuation recovered to dot-com levels. Apple probably survives a next crash with much less damage than Amazon just based on their P/E valuations and business models. Amazon is in low profit margin business, Apple is in large profit margin business. ---- edit: If Amazon long term profit margin is 4%, it must make $1.9 trillion in revenue in the future to to justify current market cap $748 B with 10% ROI. Retail and logistics are low margin business (~2.5%). Bulk web services will be low margin in the future when the industry matures. It's very unlikely that any platform business has room, or is allowed to grow, into several trillions per year revenue behemoth before regulators around the world step in.
- xkjkls 9y ago
  It's a bit of a simplification to call Amazon a low profit margin business -- Amazon is a lot of different businesses each with their own margin considerations. And most of Amazon's businesses we won't know the real margins they'll deliver until maturity a number of years out. There's only a few categories on Amazon (books, digital media, etc) that have already reached maturity and won't see any margin expansion over the next ten years.
  - nabla9 9y ago
    Most of Amazons business is retail oriented. Retail is very low margin business. Another main area for Amazon is Amazon Web Services. It will be extremely low margin business as the dust settles. Just like phone and telecom services or personal computers turned into low margin business, large scale Web services will be very low margin bulk and extremely competitive.
cs702 9y ago
The straight-faced comparisons to the inflation-adjusted valuations of the Mississippi Company and the South Sea Company made me chuckle: both of those companies ended up in calamitous crashes! * The Mississippi Company: https://en.wikipedia.org/wiki/Mississippi_Company https://en.wikipedia.org/wiki/Mississippi_Company * The South Sea Company: https://en.wikipedia.org/wiki/South_Sea_Company https://en.wikipedia.org/wiki/South_Sea_Company None other than Isaac Newton lost a fortune by speculating in South Sea Company stock: http://www.businessinsider.com/isaac-newton-lost-a-fortune-on-englands-hottest-stock-2016-1 http://www.businessinsider.com/isaac-newton-lost-a-fortune-o... By the way, we may owe the use of the word "bubble" for describing financial bubbles to the appropriately named Bubble Act passed by Great Britain's parliament in 1720, during the South Sea stock mania: https://en.wikipedia.org/wiki/Bubble_Act https://en.wikipedia.org/wiki/Bubble_Act
- rurounijones 9y ago
  Extra History has a great series on the South Sea company: https://www.youtube.com/watch?v=k1kndKWJKB8 https://www.youtube.com/watch?v=k1kndKWJKB8

123 points by uptown 9y ago

The 17-18 century companies are of course not adjusted by inflation, they are adjusted by nominal GDP, i.e. as a fraction of the worldwide or their host country GDP. $7.9T in 1617 means about 20-30 billion UK pounds of the era, which is an absurd amount of money, much more than the total worth of all assets in the world at the time.

adventured 9y ago
The same absurd premise that causes people to think eg Rockefeller's peak wealth adjusted should be more like $400 or $500 billion today (when in fact it would be closer to ~$30 billion using an inflation adjustment from the early 1900s).
- anovikov 9y ago
  But in a way such comparison makes sense. It shows how much weight a company or a person had in the world or society of the day.

dagaci 9y ago

Interestingly amzn, goog seem to be doing this on much lower volume than the competition https://finance.yahoo.com/quotes/AAPL,MSFT,ORCL,GOOG,INTC,QCOM,AMZN,CSCO/view/v1 https://finance.yahoo.com/quotes/AAPL,MSFT,ORCL,GOOG,INTC,QC...

encoderer 9y ago
I haven’t checked the numbers but those stocks trade 5-7x higher so it makes sense you would see lower volume. Multiply by price to see size of market. Or am I misunderstanding?
petra 9y ago
Considering Google, do you guys(and gals) think that Their moonshot factory and the businesses it created is factored in the price ? or that the stock market isn't good at factoring things at such early stage, but if we have good reason to believe that they'll do well in that area, Google is a good investment ?
- xkjkls 9y ago
  For the most part, Google's moonshot business have been a negative value to the firm. They've poured billions of capital into a number of these businesses without anything demonstrable to show for it. If you think that the future might be different in that regard, then Google is probably undervalued to you. But keep in mind that things Google is doing in it's moonshot projects, while they generate alot of press, might not generate alot of cash. Interesting != Valuable.
xkjkls 9y ago
The Alphabet volume is split between two tickers, GOOG and GOOGL.

thisisit 9y ago

It is telling that 3 out of 4 of the trillion dollar companies are actually oil companies. Just goes to show how dependent we are on the fossil fuel.

uptown 9y ago
Oil is part of the composition of so many products. It's also still an essential component to moving things around the planet. So when you decide to have that burger whose ingredients were was transported using gasoline cooked by a staff who drove to work, and the bottled water whose plastic bottle was made from oil and transported with gasoline, a percentage of the money you paid for those items slides into the revenue stream of oil companies. When you have an industry which is able to shave off a percentage of the vast majority of products moved, sold, and consumed in the world you've got a huge financial advantage.
- mobilefriendly 9y ago
  Plus it is extremely capital intensive to build refineries and offshore oil rigs, there are some economic returns for scale.
- Robotbeat 9y ago
  Most of those things can be electrified. Even plastics could be electrified (i.e. use electrolysis to produce hydrogen from water and electricity, Sabatier reaction to combine that hydrogen and CO2 into methane, make the methane into various products. Or use electrolysis on the CO2 to make CO and combine that with hydrogen to make methanol and then polypropylene, or just use the Fischer Tropsch reaction to produce synthetic oil from hydrogen and CO as a kind of drop-in replacement for fossil fuels), although I'd bet that we'll just use oil due to the large inefficiencies involved. So long term, the use for oil won't be for transport (or ought not to be) but for materials.
  - roenxi 9y ago
    I'm pretty happy to accept that, theoretically, any form of energy could be substituted for any other form. So sure, you can swap electricity in for oil. That doesn't change the present state though, which is that oil is linked to pretty much everything. And it really doesn't say anything about the economics of the situation. Batteries can store energy for use on demand, but nowhere near as well as fossil fuels. In the short term, I think the difference is something more than an order of magnitude (~1Mj/kg batteries vs >40MJ/kg fossil fuels; I don't feel like looking up per volume numbers but I imagine I'd see the same gap thing).

zeveb 9y ago

I have a pet theory that we've been systematically under-estimating inflation for the past many years, and that all these sky-high market caps are really the result of the dollar not being worth as much as we all think. Don't really have numbers behind it, other than things like a 12-pack of craft beer almost doubling over the past decade.

dnadler 9y ago
> other than things like a 12-pack of craft beer almost doubling over the past decade That's the thing about inflation, you need to look at a large basket of goods to estimate it. Different people feel price increases differently depending on what they buy. It's the aggregate number that matters at the end of the day.
- deleted 9y ago
  [deleted]
- opportune 9y ago
  Right. Commodity resources have pretty much universally decreased in price (relative to average income) as countries develop. The same can not be said for other areas such as housing and medical care. In fact the government's refusal to incorporate housing costs into conventional CPI calculations has been widely criticized as under-estimating inflation. As current official inflation metrics indicate that median incomes have stagnated over the past couple decades, this would suggest that they have in fact fallen. That's why life seems tougher now even though things like food and cheap plastic toys are cheaper than ever However, a decent counterargument is that since rents are already incorporated into CPI, adding housing prices would be a confounding variable more susceptible to different macroeconomic trends such as equity market inflations. Still, since a sizable percentage of people own houses and an even greater percentage want to own one in the future, I think it's a reasonable metric to add
  - maxerickson 9y ago
    Housing is something like 1/3 of CPI.

jedberg 9y ago

I thought PetroChina was the first Trillion Dollar Comapny(tm)?

jperras 9y ago
If you read the article, it mentions that it would be the first US-based company to hit the four comma club. They even point out that the East India Trading company, when adjusted for inflation, was a 7.9T company.
- jedberg 9y ago
  Ah I didn't notice their "US Based" qualifier.
- garmaine 9y ago
  Which still wouldn't be true because Standard Oil, adjusted for inflation, was >$1Tn.
  - larkeith 9y ago
    Standard Oil is mentioned in the article.
    - garmaine 9y ago
      Yes, defeating the claim of the article.
- TheCoelacanth 9y ago
  It's not really adjusted for inflation, though. It's adjusted for what percentage of the world's GDP at the time it constituted. That's a metric that favors older companies because there was a much smaller number of companies at the time.
dopamean 9y ago
I think people don't like counting it because of the way it was achieved. IIRC they only floated a super tiny percentage of their stock and so the overall valuation was inflated. It felt then a little the way cryptocurrency market capitalizations feel now.

cryptoz 9y ago

> we might never again see a giant stock move like Amazon has over the past 92 days. Why not? Why such a pessimistic assumption of decline in ability to quickly create value for the rest of time?

mempko 9y ago
global warming

traviswingo 9y ago

We should be careful with these types of articles and claims. Apple is trading at 18x earnings while Amazon is trading at 250x, as of this comment. Lower P/E ratios point to sturdier valuations in the market. In other words, AAPL is ACTUALLY worth its valuation in the eyes of the market, whereas AMZN would be dumped quickly should something spook investors. Just be careful on these rapid upticks, and be prepared to bail out if you went in too aggressively.

curuinor 9y ago
I like how 18x P/E is low nowadays!
- hcnews 9y ago
  This is because some of the successful businesses have learnt to build on their existing success. This is an evolution of previous generation of successful companies which mainly relied on working on one main idea. Now its become easier to built up on the infrastructure provided by previous generation's success. Or atleast that's what my current thought is regarding this topic.
  - opportune 9y ago
    It's really shuffling money from earnings into expanding an existing company is tax-advantaged. Let's say I own 100% of ACME, which made a $100 profit last year. Rather than receive that money as dividends and then reinvest it, which causes the money to be taxed now and for it to possibly be taxed at a higher rate than capital gains, I reinvest that money into ACME. This has the effect of deferring taxation on that profit and allows it to be taxed at the same rate as capital gains at a later date
- xkjkls 9y ago
  Price to Earnings less cash is probably a better metric anyways. If you take away the ~250 billion in cash that Apple has on their balance sheet, you end up with a P/E of around 12-13, which is a little below average historically.

paulpauper 9y ago

Amazon, google and Facebook..three companies to rule the world. They have been great investments I predict they will remain so for the foreseeable future. They won't suffer from the same sort of diminishing growth and loss of market share that afflicted other large companies. Google dominates mobile advertising and search; Facebook also dominates mobile advertising and social networking, and Amazon dominates commerce and business/e-commerce infrastructure. Microsoft is also a good investment.

lostlogin 9y ago
How will Facebook avoid lower growth? Or are you meaning financials rather than users? They just had a quarter that had some concerning metrics (usage among young people for example) and are surely up against world population limits at some point.
- paulpauper 9y ago
  They own Instagram, in which in retrospect was a huge success. The financial growth comes from branching out into different industries and extracting more value from existing users.
  - exalsy 9y ago
    Exactly, it's worrying to think of how powerful Facebook could have been if they had successfully bought Snapchat back in 2013 like they tried to do; its usage amongst young people is very high and they'd have easily dominated every age group in terms of social media.

nabla9 9y ago

Again, history does not repeat but it rhymes. Dot-com bubble had similar group of valuation leaders whose price would not collapse in enforceable future. The Four Horseman of Tech in 2000 were Microsoft, Dell, Cisco and Intel. Their combined market cap increased by 94% in few months before the bubble crashed. P/E values were MS 60, Intel 50, Cisco 200. There was no reason to assume that these companies would not be important in 20 years from now. The stock price of __good__ tech companies will not collapse because they stop making profits, gaining market share or growing. It collapses because they are overvalued. People simply refuse to understand that great companies can't escape massive over-valuation just because they are great companies. Amazon was a great company in 2000, but it took over 10 years before it's stock valuation recovered to dot-com levels. Apple probably survives a next crash with much less damage than Amazon just based on their P/E valuations and business models. Amazon is in low profit margin business, Apple is in large profit margin business. ---- edit: If Amazon long term profit margin is 4%, it must make $1.9 trillion in revenue in the future to to justify current market cap $748 B with 10% ROI. Retail and logistics are low margin business (~2.5%). Bulk web services will be low margin in the future when the industry matures. It's very unlikely that any platform business has room, or is allowed to grow, into several trillions per year revenue behemoth before regulators around the world step in.

xkjkls 9y ago
It's a bit of a simplification to call Amazon a low profit margin business -- Amazon is a lot of different businesses each with their own margin considerations. And most of Amazon's businesses we won't know the real margins they'll deliver until maturity a number of years out. There's only a few categories on Amazon (books, digital media, etc) that have already reached maturity and won't see any margin expansion over the next ten years.
- nabla9 9y ago
  Most of Amazons business is retail oriented. Retail is very low margin business. Another main area for Amazon is Amazon Web Services. It will be extremely low margin business as the dust settles. Just like phone and telecom services or personal computers turned into low margin business, large scale Web services will be very low margin bulk and extremely competitive.

cs702 9y ago

The straight-faced comparisons to the inflation-adjusted valuations of the Mississippi Company and the South Sea Company made me chuckle: both of those companies ended up in calamitous crashes! * The Mississippi Company: https://en.wikipedia.org/wiki/Mississippi_Company https://en.wikipedia.org/wiki/Mississippi_Company * The South Sea Company: https://en.wikipedia.org/wiki/South_Sea_Company https://en.wikipedia.org/wiki/South_Sea_Company None other than Isaac Newton lost a fortune by speculating in South Sea Company stock: http://www.businessinsider.com/isaac-newton-lost-a-fortune-on-englands-hottest-stock-2016-1 http://www.businessinsider.com/isaac-newton-lost-a-fortune-o... By the way, we may owe the use of the word "bubble" for describing financial bubbles to the appropriately named Bubble Act passed by Great Britain's parliament in 1720, during the South Sea stock mania: https://en.wikipedia.org/wiki/Bubble_Act https://en.wikipedia.org/wiki/Bubble_Act

rurounijones 9y ago
Extra History has a great series on the South Sea company: https://www.youtube.com/watch?v=k1kndKWJKB8 https://www.youtube.com/watch?v=k1kndKWJKB8