Thank you Financial Times for answering my question on your podcast!
In hindsight, if I'd known you were going to read it out verbatim, I think I would have put it like this: considering that market capitalistion is calculated as 'Number of Shares' multiplied by 'Current Price of One Share', but we know that not everyone could sell their shares at that price, why is it still such a popular metric?
It kind of irks me when reporters say that millions have been "wiped out", or a company is "valued" at a certain figure, because those valuations are based on unrealised and therefore entirely hypothetical gains and losses. Most indicators are only a rough estimate of actual economic conditions, but in this case I think the estimation represents the real world poorly.
For example, if a company's market cap increased by 10%, it would be wrong to assume that this translates into a 10% profit for all shareholders. In reality, only the early actors would benefit accordingly, with later transactions yielding diminishing returns (as Rob illustrated in his answer). My bug bear is precisely the fact that market cap takes into consideration all of the outstanding shares, when maybe only 1 or 2% of the available stock is being actively traded. In my view, it is an ineffective mathematical shorthand that overstates the size of market movements and it would be more realistic to speak only of the current share price and, if relevant, the volume traded.
It's aroundabout the 6:50 mark in this episode: https://lnkd.in/gpzDwSMd
