If you go to Forbes billionaire's winners and losers list, you will see that these people
are making or losing millions if not billions of dollars every single day.
look at this guy, he lost 1.3 billion dollars today.
To an average person like you and me, it's difficult to comprehend that.
A million dollar for us is a lot of money, so what does that mean that he lost today
1.3 billion dollars today.
Are these people are throwing money into the wind?
Or take a look at news such as this, Bezos made 9 billion dollars in 2 days.
So let's try to understand what these numbers really mean?
Are these billionaires are as rich as we think?
Before we answer our question, we have to figure out how companies are valued in the
stock market first.
Remember, not long ago when everyone was shouting that Apple is the first trillion dollar company.
For some weird reason everyone was excited about it, if you were an Apple investor, then
that was good news for you.
If you are a simple iPhone user, that's not something you should care about.
Because by crossing a trillion dollar valuation, the company suddenly didn’t get better,
its products didn’t get twice faster overnight.
Nothing really changed except right after that, they introduced the most disappointing
iPhone ever.
Or let's go back to july 26 of 2015, if you are a simple facebook user, you didn’t experience
anything different.
The website was still operating in the same and everything seemed normal but did you know
that (Facebook) lost over 120 billion dollars on that single day.
That's more money than the entire GDP of Ukraine, the second largest country in Europe with
a population of 45 million people.
So why did the company out of nowhere suddenly lost so much money?
The problem is the capitalization.
Let's get back to apple that crossed a trillion dollar valuation.
Does that mean in order to buy apple you need the entire budget of the United Kingdom?
that’s a joke!
Here is why, to find out any companies market cap, they take the price of the stock and
multiply it by the total number of shares.
(230 x 4.91 Bil. shares) Isn't that absurd.
First of all, because this number (stock price) doesn't really represent the real value of
the company and changes every day and at the time of me writing this script, its somewhere
around 157 dollars.
Secondly, lets just say hypothetically it will bounce back to $230.
Anyone with basic knowledge of economics understands demand and supply.
Only a small fraction of people are willing to pay that much for an Apple stock.
Others would pay only 200.
And the majority will only buy it for 80 or 100 dollars.
So you can clearly see that it's already not a trillion dollar company even if the stock
price is 230.
But that's just in theory, in practice, if people at the button suddenly start selling
their stocks, the price will decrease to 60 or 40.
On the other hand, if people suddenly get excited about apple and start buying the stock,
the price can double or even triple and dramatically increase its market cap.
The point is that market capitalization is not the most accurate method to value a company.
But unfortunately, it is the most widely used.
However, how is that related to the question of this video?
Most of the wealth of these billionaires today, come from their shares in these tech companies.
Jeff Bezos is the richest person in the world because he owns 16 percent of Amazon that
has a market cap is 722.71 Billion dollars.
But as we have discussed earlier, this number (722.71) is not accurate at all which means
that his real net worth is not even near 115 billion dollars.
That's how Mark Zuckerberg lost over 15 billion dollars on 26th of july(2018) but it wasn’t
a big deal for him.
The point of this video isn’t to tell you that these people are poor, they are definitely
the richest people alive.
But rather to help you to have a better understating of the stock market.
So next time when you come across such news, you know what's really going on.
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