Good morning and happy Monday!
“To be truly successful, companies need to have a corporate mission that is bigger than making a profit.”
– Marc Benioff
Today I would like to talk about something called market capitalization, also known as market cap, and provide some thoughts on how it works, why it matters, and how blessed we are to have an opportunity to participate.
Market cap refers to the total value of a publicly traded company … it’s simply what a company is worth. The formula is relatively simple: stock price x number of shares = market cap.
Let’s just hypothetically say Intentional Wealth was a publicly traded company (which it is not) and the stock price was $100 per share. If there are 10,000 outstanding shares, the value of the company (its market cap) is $1,000,000 ($100 share price x 10,000 shares = $1,000,000 value/market cap).
The company would have the same value if there were 1,000 shares at $1,000 per share or 100 shares at $10,000 per share. (1,000 x $1,000 = $1,000,000 and 100 x $10,000 = $1,000,000).
So, I am far more concerned about a company’s total value, its market capitalization, than its stock price.
As of July 1, 2024, the total market capitalization of publicly traded companies in the United States is roughly $55 trillion … that’s trillion with a “t”! $55,253,720,400,000. (US Stock Market Total Market Value (2024) | Siblis Research). That’s a lot of commas. 😉
Now, this figure changes every day the stock market is open as investors buy and sell shares of the companies affecting their prices, but I wanted to give you an idea of the scope of the size of how huge the U.S. equity market is.
The country with the next largest stock market capitalization is China with a value of roughly $12 trillion (about 21% the size of the U.S. market). # 3 is the UK ($10.2 trillion), Japan is # 4 ($6.2 trillion), India is #5 ($5.7 trillion), Hong Kong is #6 ($4.7 trillion) and Canda comes in the 7th spot with a total market cap of $3.4 trillion. Greater list here if you are interested: List of countries by stock market capitalization – Wikipedia
As of the end of 2023 the United States accounted for 59% of the entire world’s market capitalization.
Think about that! The U.S. has about 4.23% of the world’s population, but 59% of the world’s market cap. We are truly a blessed nation!
The United States is far and away the richest country in the history of mankind!
Nvidia just made financial news on November 6th when it became the largest market cap company in the world. As of the market closing on 11/6/2024 it’s market cap was $3.57 trillion. That means that Nvidia is more valuable than all of the publicly traded companies in the entire country of Canada. Holy cow! Nvidia could be a country 😉
I have much more to say about this topic, because it fascinates me, but I’ll restrain myself from going too deep into the weeds.
Here’s the bottom line: as investors we get to be owners of these companies through stock ownership!
For the vast majority of human history, the wealth of business ownership was reserved for a very small number of people. It’s now available to all of us. My 11- & 13-year-old children are business owners of companies because of their mutual fund & ETF holdings. (I’ve got a funny story to tell you about my kids and investing … I’ll save that for another time.)
We as investors can own a small piece of multiple companies and benefit from the profits they generate through our portfolios. This is a big deal!
As business owners we understand there will be bumps in the road, it’s not always sunshine, but we understand the long-term value of business ownership is an incredible opportunity.
Thank you for the tremendous privilege of supporting you on this journey. Give us a shout anytime we can be of assistance.
Make it a great week ahead.