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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Seeker of Truth who wrote (4331)6/5/2001 3:07:43 PM
From: Ilaine  Read Replies (3) of 74559
 
Let me try one more time to convince you on the "Total Market Cap" argument - although I don't do it best, Don Lloyd does, and I'll PM a link to this post to him so he can look it over. Take hypothetical company XYZ with a billion shares outstanding. It was chugging along at $20 a share for decades - all of a sudden it comes out with a widget that is the greatest thing since sliced bread - and the shares skyrocket to $100 a share. The total market cap goes from $20 billion to $100 billion, but the float is only a million shares. Where did the money come from?

Then Rambus decides to sue it for patent infringement, and the shares plummet to $10 a share. The market cap is now $10 billion. Where did the money go?

But anyway, we're in ceteris paribus land, so it doesn't make any difference as long as we treat it as a construct.

You're right, comparing total US market cap to GDP now and in the past is hard to do, for a lot of reasons, not just the foreign investments. How many companies were on the NYSE in 1968 compared to now? The Wilshire Total Market Cap Index came into existence in 1980. How do you make allowances for compounding?

At any rate, ceteris paribus, total US market cap has declined quite a bit - from over $19 trillion last September to around $14 trillion today. That doesn't seem salutary to me, BWDIK?
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