tag:blogger.com,1999:blog-14162253.post3890159073212017434..comments2024-03-27T08:39:28.807-06:00Comments on Wash Park Prophet: Alternative Market Capitalization MeasuresAndrew Oh-Willekehttp://www.blogger.com/profile/02537151821869153861noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-14162253.post-83592631986372437712008-10-17T13:01:00.000-06:002008-10-17T13:01:00.000-06:00The problem with the naive approach to market capi...The problem with the naive approach to market capitalization is that it assumes there are an unlimited number of buyers at the highest "bid" price. Of course that's nonsense as anyone who has access to <A HREF="http://www.mysmp.com/day-trading/level-II.html" REL="nofollow">Level II</A> quotes that show the complete list of pending orders, their age, and size.<BR/><BR/>Reporting only the top bid price -- and without size at that -- is one of the many ways that Wall Street insiders keep the riff-raff at bay (and on the losing side of trades).<BR/><BR/>Bogus market cap numbers (even conveniently computed for you on Yahoo! Finance) are fallout from that.<BR/><BR/>The proper question for market cap is: what is the price that someone is willing to pay to buy <I>all</I> the shares, over, say, a month. The time element is crucial, because as shares get bought and the bid list gets eaten up, the "top bid" reported in the popular media and brokerage screens for small-time investors will go down and more bids will pile on.<BR/><BR/>The true gauge of a companies market value would always be at best a guess, but could be approached through some extensive historical statistical analysis involving the Level II deep bid/ask lists.<BR/><BR/>Here's an analogy. If Brutus and Wimpy are on a desert island, and Brutus has 100 oranges, the only food, and Wimpy has only one dollar, and Brutus sells Wimpy an orange for a dollar, that does not make Brutus' market cap $99. Brutus' market cap is $0 because the oranges will spoil before Brutus and Wimpy get rescued.Michael Malakhttps://www.blogger.com/profile/10007582156392845677noreply@blogger.com