Ain’t capitalism great! Apple stock hit a new high today, up a whopping $12! It now has the second highest market cap in the world.
Market Cap Primer: Market cap is short for market capitalization – a measurement of the value of a company. It is calculated by taking the stock price x the number of shares a company has. In very round numbers, take Apple’s stock price of over $300 x almost 1 billion shares outstanding and you get a market cap of about $300B. Not to take anything away from Apple but like many measurements, take this with a grain of salt. Why? A stock price and thus, the market cap is the market’s estimate of a company’s value based on its perceived future prospects. In the case of Apple, the stock price is increasing not only because the company’s innovative products are producing a lot of profits today but also because investors think that they will keep innovating in the future. If investors are wrong and Apple doesn’t keep it up, guess what can happen?
So Apple just moved into second place. Who do you think is in first and who do you think is now in third? Interestingly enough, they are both oil companies. First place is Exxon/Mobil at about $314B and in third is Petro China at about $270B. Remember, a good or bad day on the stock market can have a huge impact on a company’s market cap. Today Apple was up over $12 so added $12B to their market cap given their 1B shares. Guess what happened to BP’s market cap in the months after the oil spill in the Gulf? Yep, it plummeted.
Anyway, back to why I think that capitalism is so great. Back in 1996, Apple Computer was hurting and some even suggested that bankruptcy was near as their main product the Mac computer was being pummeled. The Board hired back Steve Jobs and he transformed the company into a consumer electronics trendsetter. They removed Computer from the name several years ago and are kick’n butt with the iPod, iTouch, iPhone, and iPad. The value of a share has increased 10,000% over this time. A rags to riches story made possible by capitalism. Guess what? It can work the other way around too. If a company doesn’t keep up with the competition, their days are numbered – just ask GM and a host of other bankrupt companies.