question about stock prices

[breadisfunny]

so this may be a dumb question but i was wondering why if apple is supposedly worth so much if it's stock price doesn't reflect that by comparison to say microsoft or google? they've been called a trillion dollar company but wouldn't the stock price reflect that?

[PC2]

so this may be a dumb question but i was wondering why if apple is supposedly worth so much if it's stock price doesn't reflect that by comparison to say microsoft or google? they've been called a trillion dollar company but wouldn't the stock price reflect that?

I think what you're looking for is the "market cap". The price of a stock doesn't mean very much unless you're also considering the total amount of shares.

[Jotaux]

The value per share depends on how many shares are outstanding. Say your company is worth $100 but you have 10,000 shares outstanding. The share price is then $.01. Lets say instead there are only 10 shares outstanding, the share price is $10. Both scenarios the company is worth the same but one has a larger share price.

Additionally stock prices are based on speculation.

[Sorensen]

I think what you're looking for is the "market cap". The price of a stock doesn't mean very much unless you're also considering the total amount of shares.

2nding this. You are conflating the market cap with the stock price which are related but not directly.

[Masark]

so this may be a dumb question but i was wondering why if apple is supposedly worth so much if it's stock price doesn't reflect that by comparison to say microsoft or google? they've been called a trillion dollar company but wouldn't the stock price reflect that?

Comparing share prices doesn't mean anything because shares aren't the same size.

Apple has about 17.1 billion shares, whereas Microsoft has about 7.5 billion and Alphabet only has about 680 million shares.

A share of APPL is 0.0000000058% of the company.

A share of MSFT is 0.000000013% of the company.

A share of GOOG is 0.00000014% of the company. (actually a bit more complicated than this, as they have multiple classes of stock)

[apen]

so this may be a dumb question but i was wondering why if apple is supposedly worth so much if it's stock price doesn't reflect that by comparison to say microsoft or google? they've been called a trillion dollar company but wouldn't the stock price reflect that?

Stock prices are based on total future after tax profits plus company residual value minus outstanding debts and other liabilities (in a nutshell) but it's way more complicated and extremely time consuming to estimate valuations properly. If you want to get an idea of how valuations are calculated look up aswath damodaran, but to really learn it you'll need to learn company finance, read many books on valuing businesses, learn how to estimate the value of new company plans, approximate market share, etc. etc. and then use that information to determine if the stock is overpriced or not.

I highly recommend sticking with low fee (0.2% - 0.3% or so) no load index funds from Schwab or vanguard (as mainstream finance people recommend) and ignore individual stocks. Picking individual stocks often leads to underperforming indexes unless you get lucky and only concentrate your net worth in a few stocks (which is very foolish) and you don't even get the diversification that is so important to investing. But just because a company value can be approximated doesn't mean its price will reflect its fairly priced valuation...

[druchii5]

I highly recommend sticking with low fee (0.2% - 0.3% or so) no load index funds from Schwab or vanguard (as mainstream finance people recommend) and ignore individual stocks. Picking individual stocks often leads to underperforming indexes unless you get lucky and only concentrate your net worth in a few stocks (which is very foolish) and you don't even get the diversification that is so important to investing. But just because a company value can be approximated doesn't mean its price will reflect its fairly priced valuation...

Much agreed with this. Index Funds are the way to go. To name some at Vanguard, look for VTSAX (total US stock market) and VTIAX (total international stock index). Investing in these are very "buy and hold" approaches. Naturally there's nothing interesting or "sexy" about this method, but it guarantees a safer approach than individual stocks. Also, read about Bogle's "Three Fund Portfolio" concept for more information.

[Rasulis]

Much agreed with this. Index Funds are the way to go. To name some at Vanguard, look for VTSAX (total US stock market) and VTIAX (total international stock index). Investing in these are very "buy and hold" approaches. Naturally there's nothing interesting or "sexy" about this method, but it guarantees a safer approach than individual stocks. Also, read about Bogle's "Three Fund Portfolio" concept for more information.

I prefer sector specific rather than index fund. Like FSCSX.

Compare VTSAX with FSCSX.

Fund Inception: 2000 vs. 1985
YTD: 3% vs. 25.91%
10 Year Return: 13.26% vs. 22.04%

VTIAX performance is even worse than VTSAX.

[druchii5]

I suppose this may be true, but I prefer to be a simple investor and avoid the headache of re-balancing more funds in the long run. It's just easier for me to be as passive as possible in regards to investing, although I do get the argument for a more active approach. Also, it's best to always consider that past performance does not guarantee future returns.

[Ripster42]

2nding this. You are conflating the market cap with the stock price which are related but not directly.

Well, pretty directly. Stock price * outstanding shares = market cap. If stock price increases, so does the market cap. That's a direct relationship.

[Zan15]

I prefer sector specific rather than index fund. Like FSCSX.

Compare VTSAX with FSCSX.

Fund Inception: 2000 vs. 1985
YTD: 3% vs. 25.91%
10 Year Return: 13.26% vs. 22.04%

VTIAX performance is even worse than VTSAX.

at this point just take all pharma/bio/tech and put them on wall
spin around 100x
throw dart
take dart out of wifes leg.
throw dart again
apologize to dog
throw dart and hit one of the stocks and invest.

[Gestopft]

at this point just take all pharma/bio/tech and put them on wall
spin around 100x
throw dart
take dart out of wifes leg.
throw dart again
apologize to dog
throw dart and hit one of the stocks and invest.

I like how the dog gets the apology and not the wife.

(It's because she understands and the dog doesn't)

[breadisfunny]

wouldn't the speculation of said stock somewhat resemble the worth of said company though?

[Draco-Onis]

wouldn't the speculation of said stock somewhat resemble the worth of said company though?

No, the stock market measures the potential for a company not what the company is worth. There are metrics that you can analyze to see if that is true but the stock market pretty much indicates the future value for example Tesla is not worth what it is the price reflects what speculators believe it will be worth. I suggest you got to this site it's very helpful to get down the basics.

https://www.investopedia.com/

[procne]

For me stock market only resembles what people *think* company is worth.

An anecdote - when Pokemon GO started as a huge success stock price of Nintendo went up. Even though Nintendo has nothing to do with Pokemon GO.
It's just people always linked Pokemon games with Nintendo, so they immediatelly thought that if Pokemon GO does well then Nintendo must be doing well too! So they started buying stocks driving prices up.

I feel like nowadays people are buying stock hoping to sell it later at higher price (= easy money), rather than for dividends and participation in the profits. Which imo nullifies the point of stocks. They don't care about company's assets, what they're worth, or the metrics. It's just "will it do good, will the price increase?". More psychology than economy

[Zan15]

I like how the dog gets the apology and not the wife.

(It's because she understands and the dog doesn't)

She is the one nagging for him to get shit done...so..... :P

[PC2]

For me stock market only resembles what people *think* company is worth.

Yeah but that's not unique or specific to the stock market. The price of a private business also depends on how buyers/sellers and potential buyers estimate its worth and future returns. Anything that depends on future performance will always involve uncertainty and speculation.

"Fads" happen in the stock market because of how easy it is to buy and sell but just like everything else it eventually comes into alignment with the real value over the long-term.