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I've said this before and I'll say this again: computing total market capitalization by simply multiplying the last traded price by the number of shares is nons

I've said this before and I'll say this again: computing total market capitalization by simply multiplying the last traded price by the number of shares is nonsensical, because it doesn't take into account the fact that the supply and demand of those shares changes with the price. It is taking a marginal value and imputing the total value. The media and everyone else should stop treating it as a number with any meaning.

hooverd 3y ago
Don't tell that to the crypto market.
Kon-Peki 3y ago
> computing total market capitalization by simply multiplying the last traded price by the number of shares is nonsensical It's a quick and easy calculation, and you shouldn't worry too much about it. Pretty much anyone serious uses a market capitalization number calculated using the number of floating shares (shares actually available for trading by the general public), including all the (serious) index funds. Everything will be fine :) EDIT - For example S&P would assign this an IWF of 0.01, meaning it isn't even eligible for the S&P Total Market index fund, let alone the S&P 500: https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf?utm_source=pdf https://www.spglobal.com/spdji/en/documents/methodologies/me... https://www.spglobal.com/spdji/en/documents/index-policies/methodology-sp-float-adjustment.pdf https://www.spglobal.com/spdji/en/documents/index-policies/m...
jfengel 3y ago
For a well-traded commodity, it's a reasonable extrapolation. We even get to test it sometimes. When a company is sold, the offer price is usually about the same as the current market price. There's usually a small premium because you tip your hand that you want to buy all of it, but it's a factor of 10%, not 2x or 10x. Shenanigans can flout that. Crypto trading is almost all shenanigans. So is most of the "pink sheets" (penny stocks). When the trading is thin, the metric is easily manipulated.

hooverd 3y ago

Don't tell that to the crypto market.

Kon-Peki 3y ago

> computing total market capitalization by simply multiplying the last traded price by the number of shares is nonsensical It's a quick and easy calculation, and you shouldn't worry too much about it. Pretty much anyone serious uses a market capitalization number calculated using the number of floating shares (shares actually available for trading by the general public), including all the (serious) index funds. Everything will be fine :) EDIT - For example S&P would assign this an IWF of 0.01, meaning it isn't even eligible for the S&P Total Market index fund, let alone the S&P 500: https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf?utm_source=pdf https://www.spglobal.com/spdji/en/documents/methodologies/me... https://www.spglobal.com/spdji/en/documents/index-policies/methodology-sp-float-adjustment.pdf https://www.spglobal.com/spdji/en/documents/index-policies/m...

jfengel 3y ago

For a well-traded commodity, it's a reasonable extrapolation. We even get to test it sometimes. When a company is sold, the offer price is usually about the same as the current market price. There's usually a small premium because you tip your hand that you want to buy all of it, but it's a factor of 10%, not 2x or 10x. Shenanigans can flout that. Crypto trading is almost all shenanigans. So is most of the "pink sheets" (penny stocks). When the trading is thin, the metric is easily manipulated.