Ponzi Factor | V-Log 2 | Apple $1 Trillion Joke

Hey, this is time. It's Saturday night, so that's one a little more casual - it's actually Saturday, whoo, Sunday morning now, 1 a.m. Clearly, I go out and party on Saturdays, and I said last time I'm gonna try to stay away from current events. But this time, a current event also has to do with the research ideas I really want to share.

So, we're gonna talk about the Apple one trillion dollar market cap and explain why this is such a silly number. It's actually based on false math. In a moment, you'll actually get enough information and go debate any finance professor after you know this and really embarrass him and destroy the whole world.

This Apple market cap basically hit one trillion dollar market cap on August 2nd this week. The problem is this formula for market cap. The formula for market cap is basically you take the number of shares outstanding that Apple has and you multiply it by the price and you'll get the market cap. This is also what people see in their portfolio, right? If you have like 10 shares of Apple and Apple’s trading at $200, you take the price, $200 times the number of shares you have, you know, you're under what? $2,000.

The problem is, it's wrong. As in, the math here, if you just model a price button the shares outstanding, you sure that comes out to this number. But the problem is there's no logic behind it or there's seriously flawed logic behind it. Okay, and here's why.

The total number of shares outstanding Apple has is 4.8 billion dollars. Hold on a second. Okay, when this one trillion dollar market cap was attained, only 60 million of those shares of 4.83 billion shares were actually traded. So the price that they used here in P was really attained from a few of these 60 million shares that were being traded. The price from these 60 million shares is being applied to all 4.8 billion shares when 98.8% of those shares were never even traded. But the reality is this price is actually attained with one or two or just a handful of transactions. It could literally be as little as just one share.

Okay, and that one share for that one price can be applied to all 4.83 billion shares. You guys can see a little bit of a problem with that already, I'm sure. So let me give you a more vivid example. On August 2nd, the number of shares 4.83 billion times 208 equals one thousand and four billion dollars. Now let's say the next day I go to the market and I buy just one share for two hundred and ten dollars. Okay, just one share. So I contribute two dollars to this number. Alright, what does that do when I just contribute only two dollars because I'd only buy one share?

Well, that would basically make Apple’s valuation go to 1014 billion. Alright. So, meaning, people who are holding Apple stocks in their 401k and their stock accounts, all of them will actually see a total gain of ten billion dollars even though I just contributed two freakin dollars more into the market than the previous price. You see how that's messed up? That just bleeds into other areas in finance and other formulas they use because this is such a fundamental thing, and people in finance can't even get this one little thing right.

Now is the math okay for the market cap? Yeah, because that's how they calculate it. I'm not saying, you know, that they didn't multiply correctly or anything. The problem is you shouldn't apply this price on all the shares when really this is just like one share, and there’s a serious disconnect in the logic they use.

There's also debunks myths that people think, "Oh, well if I have stocks, I can just go to the market tomorrow and sell them," as in stocks might not be real money, but I can just go cash out tomorrow. This here, the fact that only a fraction of the shares outstanding are traded every day debunks a myth because everyone thinks that, "Oh yeah, I have a stock; I could just cash out tomorrow." No, you can't, if you actually pay attention to how everyone who is holding that thing, but every single day, only that's actually being traded.

And what can you do with this information, right? You can basically go debate people like John Cochran at the University of Chicago and John, I'm not gonna pronounce that last name, just guy at Yale. Basically, these are finance professors who are at very good schools and I have nothing personal against these guys, okay? But at the same time, I heard them talk before and they totally think that this market cap of a trillion dollars is real money and they would just basically say, "Yeah, you would have made this money, you would have had this money." It’s just ridiculous what they think, and they teach at very good accredited universities.

On a personal note, because I’m actually doing research on this one thing where in 1985, these this guy and this guy, again I'm not gonna pronounce the names. Well, Edward, I can't pronounce that easy. So, these two guys came out with this paper called the equity premium puzzle. Basically, it just says that, "Oh, isn't it puzzling how much the stock returns have been?" As in, it's puzzling based on the risk that's involved.

Well, it's a puzzle to them because they actually believe in this format and they're using this formula and they think that just actually represents a return. It's not puzzling to us based on what we just explained, which is, "Yeah, you're applying a fraction of the traded shares out to the price that you attained to all the freakin shares even though almost 99% were never even friggin traded."

Okay, meaning yeah, you think that it's puzzling what the equities have been returning? It’s because equities haven't actually returned that much; it's because you're using a false formula. Okay, now at this point, a good question that you guys may be asking, wondering right now, is why on earth am I doing a vlog about this and not talking about this at a more academic level and challenging these guys in a more official level?

The answer to that is one, I am trying to do just that, which is write academic papers and debate these guys in a more official level. Now, the thing is though, I am not familiar with this process, okay? It’s not like if I have a real mentor, but I am researching on my own and I intend to make sure that this gets more mainstream at the academic level.

Now, however, with that said, I can see a big problem why I would still have a hard time publishing this idea because even though what I just explained here makes perfect sense why my $2.00 additional into the market never makes evaluation pop by 10 billion dollars, right? Even though what I explained is so simple. But imagine if they actually applied this logic to their calculations as in, "Hey, you know what, if only one percent of the shares were traded, we should apply to the other 99 percent."

So, therefore, the valuation for those 1 trillion dollars should be far less than a trillion dollars, maybe even just a couple billion or something like that, right? Holy smokes! Can you imagine what would happen if they actually corrected this formula and that's just one trillion dollar number got diminished? Really just a fraction of it.

Keep in mind, this is what people see in their 401ks. This is what people see in their stock portfolios and all of a sudden they're just getting a little far smaller number at that point. Maybe John Cochran will realize, "Oh, what do you know? It's not real money." Yeah, it's not real money. I don't even know why you think it's real money. I can't believe you're teaching there anyway.

Again, I have nothing personal against John. The point is, yeah, imagine if they actually start applying this logic into the portfolio evaluations and what? Well, it would just totally make everyone's imaginary money go away if they just haven't corrected this formula. So I can see a lot of pushback already in the academic world, even if I do approach them.

So that’s that. Now you can go out there and literally embarrass and destroy the lives of many finance professors. But I'm not the one that can make anyone's money disappear because, yeah, I just don't have that power. If you have money, I'm not the guy. I have no power to make it disappear.

Okay, but what I can, of course, obviously do is point out that you don't have any money in your portfolio. Point out that Apple is not really worth one trillion dollars as they miscalculated earlier, and that's the extent of my power. But trust me, that's pretty darn powerful and now you all have the power to do that as well. Thank you so much for following me, and I will see you at the next village. Bye!