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They never made sense. They are made by calculating the price * shares in circulation. If you had to do a moment-in-time sale of the company's shares the "rea

They never made sense. They are made by calculating the price * shares in circulation. If you had to do a moment-in-time sale of the company's shares the "real" price would be the integral of all outstanding buy orders for the shares up to the total number of actual sales. So a "reasonable" valuation that "does not take into account the future of the company" would be somewhere between the two (you'd never realistically drill that far into the buy orders without more buys showing up). Of course such a synthetic measure of valuation is equally stupid as the simplistic one we use by convention.

lotsofpulp 5y ago
It makes perfect sense as long as one is not engaging in clickbait hyperbole or twitter rage posts. No one who has thought about the calculation of the market cap metric would say it is the objective definition of “worth”, especially if you ignore share volume when comparing.
leobg 5y ago
Can you explain why simple multiplication doesn’t make sense? I mean it seems that it yields the amount of Dollars that all stock buyers have been willing to either pay or hold at. Is your point that it doesn’t make sense if only a portion of a company’s stock is free float?
- dnautics 5y ago
  > I mean it seems that it yields the amount of Dollars that all stock buyers have been willing to either pay or hold at. That's not how trading markets and stock prices work. The stock price is the price that the last trade occurred at (and that is usually -- but not always, especially not if the market is illiquid) between the highest buy price on currently in the market and the lowest sell price in the market. It is explicitly not the price all stock buyers have been willing to pay --only the last one.
  - leobg 5y ago
    Yes, this is true. But isn’t it also true that everyone holding a stock is making the implicit choice not to sell at the current price? To phrase it differently: If they thought their position was worth less than what they could get if they sold at the last recorded price, then they would dumb their shares. Hence the fact that they keep holding suggest that they think the current price does not yet reflect the value of the company.

lotsofpulp 5y ago

It makes perfect sense as long as one is not engaging in clickbait hyperbole or twitter rage posts. No one who has thought about the calculation of the market cap metric would say it is the objective definition of “worth”, especially if you ignore share volume when comparing.

leobg 5y ago

Can you explain why simple multiplication doesn’t make sense? I mean it seems that it yields the amount of Dollars that all stock buyers have been willing to either pay or hold at. Is your point that it doesn’t make sense if only a portion of a company’s stock is free float?

dnautics 5y ago
> I mean it seems that it yields the amount of Dollars that all stock buyers have been willing to either pay or hold at. That's not how trading markets and stock prices work. The stock price is the price that the last trade occurred at (and that is usually -- but not always, especially not if the market is illiquid) between the highest buy price on currently in the market and the lowest sell price in the market. It is explicitly not the price all stock buyers have been willing to pay --only the last one.
- leobg 5y ago
  Yes, this is true. But isn’t it also true that everyone holding a stock is making the implicit choice not to sell at the current price? To phrase it differently: If they thought their position was worth less than what they could get if they sold at the last recorded price, then they would dumb their shares. Hence the fact that they keep holding suggest that they think the current price does not yet reflect the value of the company.