The article has wrong facts. The columbia journalism review author double counted inflation. The NYTimes piece he cites has already adjusted for inflation in the 1967 IBM Market cap.
CORRECTION: Let me rap myself on the knuckles here for the above update, which was flat incorrect. As commenter JD points out, IBM’s 1967 market cap was not $1.3 trillion in real dollars, it was $192.3 billion. The NYT’s data was already adjusted for inflation.
Actually to really compare the weight the company had in its days it is more meaningful to compare its market cap to GDP.
Wolfram Alpha gives me 852 billion for 1967 so IBMs market cap was approx. 22.5% of that. 2012's estimated GPD is 15.6 trillion thus Apple has a mere 4.2% of that.
That was how big IBM really felt back then.
If we correct the error, we conclude that in 1967, IBM's market cap was approximately 3.3% of US GDP.
That seems much more reasonable to me. Although IBM owned much more of the market for computers than Apple does, the role of computers in society has expanded drastically. E.g., there was no consumer computer market at all in 1967.
P.S. MSFT’s 1999 high of $620.6 billion represented 6.5% of 1999's US GDP.
Thank you I was unaware. I thought it looked quite high but decided not to check. Your explanation also didn't occur to me I rationalized it away with their monopoly position but of course the IBM monopoly must have been worth less than the MSFT monopoly given the enormous expansion in market size.
I didn't downvote it, but the calculation appears wrong: the $852.7B are nominal 1967 GDP; in 2012 dollars, this would correspond to more than $4T, so IBM was less than 5% of GDP even back then.
>.... [Apple] would have a value of more than $3 trillion by 2020. As the Times points out, that is bigger than the 2011 gross domestic product of France or Brazil.
Comparing an outlandish guess for a 2020 market cap versus a 2012 gross domestic product (a flow of money, not a store) is hand waving, not analysis.
This is worse than hand waving. It is the kind of static typing error one gets when using Astrology to reason about money.
You just cannot compare the value of a projection/guess that doesn't account for inflation with the current instantaneous GDP value (thus completely ignoring the fact that money today is worth more than in 2020) while at the same time not projecting Brazil's current value.
Surely if the journalist actually thought Apple stock would increase in value 6 fold in the next 8 years they'd buy it. (And then put a disclaimer on the article.) If the market shared their opinion then it wouldn't be available to buy at such a low price.
Apples and Oranges. The GDP is the income of a country (roughly), the market cap is more than the current annual income of a company. Not at all comparable.
It's gross how much of the article is spent postulating on what Steve Jobs would think. He's gone. It's both irrelevant and disrespectful to put thoughts in his head.
When you see people BUYING t-shirts which are blatant advertising of popular brands, then you reach that point where people identify themselves to a brand before all.
I'll use myself as a proof by counterexample. When I was buying my t-shirts from places I actually wanted to support, like ThinkGeek, or buying solid colored t-shirts with no logos, I found that the poor fit of the t-shirts was making me look bad and feel uncomfortable.
Eventually I was talked into going "shopping" by a couple of female friends (actually, I talked them into being my guide), and found that the only t-shirts I could find that made me look and feel good, with a wide range of prices, also happened to have well-designed corporate logos on them.
So, until it becomes technically possible and socially acceptable to have custom-tailored t-shirts that fit perfectly, have the right fabric, pattern, and seam/collar/hem, and are emblazoned with my family crest or personal corporate logo, I will continue to buy whatever looks and fits the best within my price range.
ThinkGeek apparently uses Gildan shirts, which are cheap, baggy shirts made out of thick cotton; you were probably buying shirts of similar quality when you bought plain shirts.
Since it seems you're spending more on shirts now, you're probably getting a better quality product. Plenty of stores from Target to Gap to American Apparel and so on have better-fitting shirts made out of lighter-weight material with no visible logos, likewise in a range of prices.
Nike Air Pegasus 2 are the best running shoes I've ever had for training, I went through a gait and foot impact test at a sport science clinic to match shoes to my running style. Their combat compression kit is also some of the best you can buy in terms of lasting the year even when used every day.
Now if you meant those ridiculous Airs with the spring shocks in them then yes, but brands that endure aren't built on nothing.
While I do agree with the side you are arguing for, last winter I bought a pair of brown Lacoste shoes that had wool inside them. I sought out the specific pair of shoes because they didn't have a single logo except in the rubber of the sole and I didn't want to be /that/ guy.
I can only speak for myself, but I find facts such as these interesting.
And perhaps there's something less negative than "consumer culture" at play… humans are generally curious about and interested in extraordinary things. e.g. Olympic athletes, inordinately successful businesses and business people, brilliant artists, robots landing on other planets, etc.
There is a difference between identifying with the things you buy, and the things you buy being your identity.
Identifying with Apple because you like x,y,z of their vision/products/services, etc. is one thing. The value of Apple as a public company having an effect on your identity is a completely different monster I think.
I wish I could put it into words why it feels so wrong, but hopefully somebody else here can explain the difference.
I get so annoyed when people don't make (or understand) the distinction between the value of a company, public or private, and the market cap of a publicly traded company. They are not the same, not by a long-shot, and the biggest and most "valuable" companies are usually private.
When are these numbers ever inflation adjusted? Biggest grossing movie of all time inflation adjusted is still Gone With the Wind, but that didn't really stop people from talking about Titanic or Avatar.
Well, funny enough, if you look at the hacker news thread about Avatar hitting 1B, it is in fact discussed (one of the people mentioning it is me).
I stand by this, just as with movies: it matters. If not these numbers are completely arbitrary and meaningless. It is equivalent to comparing, numerically, the price of one company in Pesos vs the price of another in Dollars, it would make no sense unless they are both converted into the same unit. In this case, we don't even have to go that far back: even Microsoft's market cap in 1999 (adjusted for inflation) was more.
Oh, I kind of agree, but this just seems like "neener, neener, not the biggest."
To take a different angle, computers and electronics have only gotten cheaper since 1967. So maybe Apple should be compared to a deflation adjusted IBM market cap. How would those numbers stack up?
I think the main point is that any time value in a monetary unit is measured over time, it is naturally adjusted for inflation. This is done with basically everything. So it's not necessarily a "neener neener" situation, it's applying standard process.
I think the real question that is trying to be answered is which company is worth more, period. How do you measure worth? In dollars is one way, making use of the market cap. Which has/has made a larger (positive) impact in the world is another. Which metrics should you use to get to the answer is the question...
Adjusting for change of price in goods (your suggestion) is a little shaky of any idea in my mind, as 1. inflation affects all goods instead of a subset, which means there's more choice. 2. IBM must've had it harder since the cost was higher and they still managed such a large market cap, ie. took more value output to create the market cap.
"Apple's market capitalization is still well below Microsoft's 1999 record if inflation is taken into account. The $619 billion then becomes $846 billion."
Rockefeller's Standard Oil was possibly even more valuable - at the time of it's anti-trust mandated breakup it produced around 90% of USA's oil. The companies it split into became Exxon, Mobil, Chevron, Amoco, Conoco, Unilever (!) and a whole bunch of others.
I'm playing wiki-facts here, but Unilever bought one of the breakup companies in 1987. The Unilever conglomerate established itself very much without being part of Standard Oil.
What about what ever entities that went after the Spice islands? Or east india company? I guess they were commissioned from the monarchies or parliment themselves so perhaps they don't count.
Let me get this out right now: Valuations mean jack shit (companies/houses/startups/humans - whatever). Especially "market caps".
Understand this:
21.91 million shares of Apple were traded yesterday. That is $14,460,600,000 moving around. [1]
Now you must adjust down for HFT traders, market makers, option hedgers, futures guys and anyone else who trades massive amounts of stock each and every day. My rule of thumb is ~10% actually moves hands (rather than just being moved around).
So now we are at $1,460,600,000. Only $1.5 billion dollars actually moved around yesterday. If you had $1.5 billion dollars yesterday you could've controlled the "market cap/valuation" of 1 billion shares and half a trillion in value.
You can control the market cap of anything utilising the fact that valuation uses multiplicative leverage on stuff that doesn't exist yet. [2][3] Indeed - all those teengers you see in college at age 11? Way overvalued - come and check back in 10 years. Fallacy of exponential growth runs rampant through most of finance, and teenage "prodigies". [4]
Basically with only $1.5 billion you could control the value of $500 billion dollars worth of assets - on any one day - that's it. This is how you get bubbles. This is how you can have stock market booms and busts.
Valuation leverage allows you to bid up prices for any stock using less than 2% in actual value, selling to the next tulip buyer whenever they come in trading. [5] If you had to use 100% cash - well there just ain't enough to go around my friends!
Startups?
Invest $20K just like YC does, valuing a company at $1 million - pre-product and sometimes even pre-team! The million dollars just ain't there yet - but everybody - look yonder - valuation and investor interest over the horizon!
Venture Funds?
Instagram received a $50 million cash injection which valued it at a cool $500+ million - pre-revenue. $500 million in cash wasn't actually in the coffers (or on the horizon) but Facebook look - just look - at our valuation/predicted growth - you gotta buy us out (with cash of course). And double the price while you're at it.
~2% of the world's value actually exchanged hands yesterday on the world markets.
~0.5% of market participants actually moved the prices that the rest of the world was priced at.
Hold ~2% of the world - and control it all.
Valuation is bullshit - it's like leverage without the cost of capital.
I'm not so sure that temporarily changing the market cap of apple really would count as controlling it.
It's like saying: I can jump on the field at a Yankee game and "control" 50k spectators and 50m viewers. You may influence them for about a second, but the farther you try to bring the situation from the market's desire, the quicker you'll be corrected.
Sinking 1b into selling apple short would make a small, temporary dent in their market cap.
If you think something is overvalued, you should sell it short. If you think ycombinator companies are overvalued, you should contact the investors and give them odds against the ycombinator startups successes, and it would be in their best interest to take you up on it as a hedge.
In general terms, if you claim to have knowledge of a mispriced asset, there always is an implied economic action you should take to make money off of your unique knowledge.
You ignore the effect of feedback loops. You are also making the fallacy of reification (market doesn't want anything).
They key part to this lesson is that valuations are essentially arbitrary (not about market manipulation - although market dynamics are an interesting subject). Take no stock in them (pun intended) - just like you should ignore the predictions of pundits.
The following examples exemplify the meaninglessness of valuations:
If I had a kid, he/she would be worth more to me than anything else in this world. But as much as I'd adore him/her - he/she ain't worth jack to anyone else. If I'm dying of dehydration - the next cup of water is worth most of my future earnings. If I just had a glass - it's worth next to nothing. Dying because a fire is burning and you're running out of air? Oxygen tank would be pretty handy right about now. Got enough oxygen? Pfft don't need your tank.
Valuations are and will continue to be meaningless.
> try to bring the situation from the market's desire
I doubt it - you need regulatory agents to rein it in (security). Also - you are making the fallacy of reification right here.
Otherwise - it's a free for all.
Audiences love that stuff.
PS: Shorting a billion in Apple would seriously depress its price as feedback pulls in (stop losses and latent short orders) - and if you hook it up to another one - like say a debt crisis - well now you have some fun on your hands.
Also your name reminds me of that dancing monkey problem I must write about some day.
If I'm dying of dehydration - the next cup of water is worth most of my future earnings. If I just had a glass - it's worth next to nothing. Dying because a fire is burning and you're running out of air? Oxygen tank would be pretty handy right about now. Got enough oxygen? Pfft don't need your tank.
These are examples of arbitrageable opportunities. The wealth you can create by moving a glass of water from a lake to a desert is a real thing. Valuations aren't "meaningless" in that way unless you take the extreme nihilist position of everything being meaningless because it would change in a different situation. That's not meaninglessness, it's just context-sensitivity.
The fallacy of reification only occurs if you assign value to the existence of things (like "we should reduce regulation because the market wants it"). It's perfectly useful and common to say things like "the market wants" to mean "the market acts in a way such that were it a sentient being it would act this way because of a conscious desire" without actually holding the view that the market is a sentient being. That's just how English works (see, I did it right there).
People conflict agency with representation all the time.
This is not a good thing for every situation - especially abstract concepts such markets and governments.
I never said statistical arbitrage was not possible. I merely indicated that another's valuation is meaningless to your decision about future profits generated by an entity.
I'm probably a nihilist then aren't I. Why bother arguing with me at all then? :-)
This is a ridiculous article. Its obvious the world is becoming more competitive (ie there are no modern day John Rockefellers adjusted for inflation). What Apple has accomplished is amazing, and I'm not even an Apple fanboy. Credit where credit is due, and Apple hasn't topped -- yet!
If you're the top market capitalization company, you're doing something right (especially from where Apple came from). Its like winning gold and saying well you didn't beat the world record so you're gold doesn't count.
How about this alternative way of measuring the 'value' of a company: Net asset value (including retained earnings) plus the sum of all dividends ever issued, minus total investment capital.
Most companies don't trade at book value because net asset value is a bad measure of market value. Getting a mark-to-market assessment on a firm's entire balance sheet is very expensive and still resorts to estimating market value rather than directly sampling it.
One could do equity value + discounted payouts - discounted invested capital. This includes payments on debt and possibly taxes.
This measure would not be a "value" in an economic sense as valuation is in present terms, incorporating future potential and using the past only to inform assumptions. This measure catalogs a company's time-integrated capital productivity. This could inform a valuation, but taking an extreme case, it would value dearly a shell company that just paid its assets out in a dividend.
With the subjectivity complexities like cross-border activity or M&A introduce the exercise has little value beyond the pedagogical.
The dividends issued historically are gone, entirely separate from the company. Assets and liabilities can exist in different forms, including tricky ones like depreciation and intangible assets. If such 'value' is accounted for important uses, manipulating it will be much cheaper and easier than manipulating market cap anyway.
Sure, it's hard to measure the value of assets. But look at it this way: In the long run, every company dies, so assets always go to zero. What investors (in aggregate) are left with is the net sum of dividends paid out.
To answer "what is the most valuable company in history" I would look for the company which paid out the most in dividends before it expired. Stock price is largely a measure of which company has managed to attract the most suckers.
Don't know why people would downvote this. It's a pretty good idea of how to measure the value of a company. It's somewhat shy of the true metric which would be along the lines of 'how much better it made the world'. Market cap is appealing because it's trivial.
These definitions would also allow comparing non-standard corporations, like churches and states. It seems like this is a natural comparison - it's inevitable that big companies are ranked among comparable countries.
"But I don’t think Jobs would see much pleasure in winning by such means. I’d instead expect he’d want to win the prize based upon the performance of the company and beat the rest without an asterisk next to the record."
What a load of crap. I fully remember when Jobs tried to define NeXT as a if not the leading workstation company by twiddling the definition of workstation to exclude Sun and HP/Apollo.
