Did you ever think about market cap what it really is? We all believe market cap is generally main measure of success. Not only for company but for all assets with some value. Market cap is just a projection of value based on last settled trades.

We often see implied market cap where the word implied hints that value we imply from market cap works only in the case when there are not too much sellers/buyers. Simply said it doesn´t mean everybody can sell his asset/property for the same price. Market cap reflects only last few trades to say this number is market cap.

We have appartment in value of $500,000 and there are 1,000 appartments in the city. Total market cap is 1000 times $500,000 = $500,000,000

Total market cap for appartments in the city changes when recent sales have been for more/less than your actual appartment value. Let´s say recent 10 sales have been for average value of $450,000.

What does it mean for market cap?

Marketcap changes much more significantly. After recent 10 sales it has dropped by $50,000,000 ($50,000,000 disappeared) although only sales for $4,500,000 had been made. This is magic, isn´t it?

Here you can see that market cap is something like an imagination, it is not real value although people believe this is relevant especially during bull markets.

Leave a Reply