Ask HN: Is market-depth-adjusted market cap a useful number?
1 comments
I wish there was such a metric, but have never heard of such. The simplistic formula you give has the benefit of being simple to understand and is based on readily verifiable numbers, but is obviously wildly inaccurate.
I think we have it because it is like other lies that many people still believe, because they are easier:
- that entertainment firms lose millions of dollars to piracy (as if every person grabbing content for free would pay full price if that was their only option)
- that people with a high marginal tax rate on taxable income (U.S.) actually pay that as an effective rate on their total net income
- that carpool (HOV) lane restrictions result in more carpooling, rather than just helping people who would have been together in the car anyway, or not taking a car at all, with or without HOV lanes
I think we have it because it is like other lies that many people still believe, because they are easier:
- that entertainment firms lose millions of dollars to piracy (as if every person grabbing content for free would pay full price if that was their only option)
- that people with a high marginal tax rate on taxable income (U.S.) actually pay that as an effective rate on their total net income
- that carpool (HOV) lane restrictions result in more carpooling, rather than just helping people who would have been together in the car anyway, or not taking a car at all, with or without HOV lanes
It's unclear to me how much of it is an intentional misrepresentation vs. a convenience that ends up being misinterpreted. Those are good examples! I never thought about the widespread use of the marginal value as a proxy for general value and its implications for society.
We can integrate over all shares, I think? so, in the case of instant company liquidation, if we assume some kind of quadratic drop-off in share value, we get Adjusted market cap = (integral from 0 to 1 of x^2) * current market cap = (market cap) / 3. We can also come up with more accurate drop-offs and normalization factors.
We can integrate over all shares, I think? so, in the case of instant company liquidation, if we assume some kind of quadratic drop-off in share value, we get Adjusted market cap = (integral from 0 to 1 of x^2) * current market cap = (market cap) / 3. We can also come up with more accurate drop-offs and normalization factors.
Maybe over a long enough time horizon with enough trading activity, one can effectively buy/sell a company at the market cap? But clearly over short horizons, you wouldn't be able to due to illiquidity. Some companies would be faster sales, others would be slower.
I'm not aware of any metrics that combine market cap with how resistant the price is to fluctuations, so I thought I'd ask if anyone else is. Such a metric, in my mind, would be a more accurate way to compare values between two similarly-valued behemoths.