This is a fundamental truth for all commodities and valuable things. They’re fungible, but not positionally identical, and not linearly aggregable. This is why we prefer to talk about “utility” over “quantity” in game theory discussions.
Market cap is meaningful in some sense—the price in a liquid market isn’t just randomly the last price used, it’s the equilibrium price of a marginal share. That’s the price that current holders don’t want to sell for less, and people with money don’t want to buy or more. That equilibrium is real information.
But it’s still only for the marginal share (or block). We don’t know what the value/quantity curve looks like, or how it will change if demand changes. A thing is worth what it will bring. We just don’t know what the total mass of shares will bring.
We don’t know what the value/quantity curve looks like, or how it will change if demand changes.
This is untrue. Order book data is available for the right price (and although it doesn’t capture all capital flow, sophisticated algorithms can infer the full curves with high accuracy). For what it’s worth, many finance firms view the market price as basically noise and use order book curves as the “real” price input. Most contracts that depend on equity value will calculate it by VWAP over the last 30 or 90 trading days, which is a much better estimate of true value.
This is a fundamental truth for all commodities and valuable things. They’re fungible, but not positionally identical, and not linearly aggregable. This is why we prefer to talk about “utility” over “quantity” in game theory discussions.
Market cap is meaningful in some sense—the price in a liquid market isn’t just randomly the last price used, it’s the equilibrium price of a marginal share. That’s the price that current holders don’t want to sell for less, and people with money don’t want to buy or more. That equilibrium is real information.
But it’s still only for the marginal share (or block). We don’t know what the value/quantity curve looks like, or how it will change if demand changes. A thing is worth what it will bring. We just don’t know what the total mass of shares will bring.
This is untrue. Order book data is available for the right price (and although it doesn’t capture all capital flow, sophisticated algorithms can infer the full curves with high accuracy). For what it’s worth, many finance firms view the market price as basically noise and use order book curves as the “real” price input. Most contracts that depend on equity value will calculate it by VWAP over the last 30 or 90 trading days, which is a much better estimate of true value.