That is something different: liquidation value. Market cap tells you the sum total of the numbers next to this ticker symbol in everyone's brokerage account. It tells you the collective expectations about future returns and also the wealth effect that people feel based on their ability to individually obtain cash for shares.
It is true that neither of those things is liquidation value, but also liquidation value is neither of those things. If you expect a liquidation scenario, sure, use liquidation value. If you don't expect a liquidation scenario but want to measure collective expectations of and confidence in a stock, use market cap.
If Elon Musks sells all his shares the value of SpaceX and Tesla would drop dramatically I don’t know how much realistically he would be able to liquidate from his shares.
So the headline "is wiped" is misleading. I think it’s all ultimatively to get money in the markets and support growth
The alternative would be to gate everything behind the more sophisticated concepts and limit access to people who had demonstrated competence -- and that's exactly what we do for illiquid markets. It's not like exchange servers turn off at 4pm, if you want to step outside the high-liquidity kiddie pool after-hours and OTC trading exist. However, I am not scandalized that the kiddie pool is full of toys and you shouldn't be either.
Same clownish nonsense with this OP story, the S&P is still up 7.5% YTD, all that was lost is fabricated made up numbers on paper/screens. Now, if people sold stock and booked $2.5T in losses, then call me out please.
I can't stand the constantly lying, fraud, conning, and gaslighting. Maybe the market will drop more, maybe the counterfeit dollar market will go up. But reality is that noting is lost or made until you sell.
And conventionally, we use the marginal buyer's bid as the measuring stick for public companies. e.g. the share price
Of course, the intrinsic value based on currently known data/fundamentals is unchanged.
But many market valuations are disconnected from that to begin with. Loans, options, warrants, many things are tied to the market cap/share price of a company. E.g. what is the LTV ratio when lending? What are my RSUs worth?
This is completely and definitionally true in the context of trading, but keep this definition on a leash because if you apply it outside a purely financial context it tends to smuggle wealth-weighted objectives into your thinking, and regardless of whether or not you think that's moral you probably want to be aware of it. Example: feeding orphans is zero "value" because they can't pay you but merging the banks into a mega-bank to raise fees and collect bailouts has extreme "value" because it can make a bunch of obscenely rich shareholders even more obscenely rich and they can carve you off a mighty slice.
Due to this mismatch I keep both definitions in my pocket: Wealth Weighted Value for finance, People Weighted Value for more colloquial settings or moral analysis. "Exchange Value" is a good quasi-synonym for WWV if you want something less confrontational.
This becomes visible in buyouts where the cost of acquiring a company is significantly higher than the share price multiplied by number of outstanding shares.
How does one talk so confidently about something they know nothing about?
You are out of your depth.
the market cap is described in USD, but don’t get equal value of it and you definitely don’t get more.
If somebody would buy it for more, he would have already.
If somebody has a car and he gets 30_000 USD for it, that’s the value of it. If somebody wants a cart and he can get it for 30_000 USD that’s the price.
How do you plan to estimate value if you estimate it at the price somebody might pay for it in the future. It’s proofing too much.
Have you not noticed all buyouts are at a premium?
To repeat - you are just miles out of your depth here.
I’m aware that buyouts happen at a premium, but I state that this is not a valid argument to conclude market cap => value. If that statement would be true. Every share would be worth infinite money, as theoretically a buyer could show up and bid for infinite money.
So, we are left with the last trade, or the mid point of the bid/offer, as the best proxies. It is what it is.
The peer-comments about the market cap being representative of the expected value, or present-value of cash-flows with some discount / risk adjustment are on point. (which implies that the change in market cap might be a change in cash-flows, change in discount (typically FedRate) or risk)
I can come up with one right now. Instead of calculating it from the last price calculate it from some deepness in the order books. Realistically you cant drop just shares without moving the market so no company can just get 10% of shares dropped without losing a lot more in price impact. We only look at a small part of the market and the last price is practically the highest somebody on the world would pay for one more share. Nobody is buying for more. So its a upper bound not a good estimation.
You seem to completely misunderstand that most shares are held by people who won't sell at the current price. To them - real owners who have put money to work - the current price is a floor.
And at some point you will go back and forth and realize: last trade is the best guess on true value, even if it's wrong sometimes.
Like go to any illiquid markets on polymarket and your fallacy becomes very obvious.
Last Price x Shares is not a perfect proxy to estimate the value of holdings it has <1 elasticity.
Nobody said it was a perfect proxy. Just the best proxy. The elasticity goes both ways - you can't sell all shares at current price, can't buy them all either.
When I check Google’s definition:
Market capitalization (often called market cap) is the total dollar or currency value of a publicly traded company's outstanding shares of stock.
But the dollar value is =/ the same amount in cash, as I can’t buy the same things as I can buy with cash.
What I’m not certain about is if that’s for the greater good. Put capital to work or for the greater loss, crypto hype rugpulls?
Again, nobody said "price to buy determines value" - the argument is that last trade (or midpoint of bid/ask) is the best proxy for value. Not a perfect one.
Leave finance to people who have a clue.
Everything is valued in prevailing conditions. Conditions change, and value changes.
You can't just take the marginal share price and multiply by the total number of shares to magically get a number that is conceptually equivalent to your normie's brokerage or 401K account: A normie can liquidate their portfolios tomorrow at the market price, but no billionaire can.
Say my car is worth $15,000. But you could say “if you tried to sell it in the next 4 hours you’d never get that much”. And that’s true.
But nobody prices cars based on what you could sell them for in the next 4 hours because the market doesn’t normally transact like that.
Just like no one prices stocks based on how you’d get if you sold the entire market cap at once because the market doesn’t normally transact like that.