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Market cap has almost nothing to do with value already created. It’s the consensus guess at the discounted value of future cash flows.
by NotYourLawyer 2y ago
Market cap has almost nothing to do with value already created. It’s the consensus guess at the discounted value of future cash flows.
- foolswisdom 2y agoFuture cash flows is usually pretty strongly related to the current state of things, but adjusted based on expectations of how it will play out in the future.
- xorcist 2y agoI'd be surprised if a non-negligible fraction of investors actually made that calculation. Most buy for other reasons. Then we have the ginormous index funds who buy when buys are happening. We just collectively decided that the best thing for society is if everyone just buys stocks for their savings. Either directly or through pension funds. And now we're pretty much stuck with that.
- NotYourLawyer 2y agoWell, that's not actually the stock price. But it is a rough floor on the stock price. Meme stocks can get bid up into crazy territory and stay there arbitrarily long. But if a stock goes way below its fundamental value, someone will buy the company at that discount.
- kriops 2y agoIndeed. Because of the price mechanism they don't have to. Provided that some do, of course.