market cap meltdown

I just thought of noting down the change in market caps of some of the largest companies in the US. Let's start with the market itself. The S&P-500 started the year with 2695.81. Here we have the google screen shot of the index.

On 7 December 2018, it was at 2633.08. Not that good. People are giving all sorts of reasons for the fall; but none of them are convincing, because it is the nature of the market to fall and rise, and rise and fall. Frequently, it forms sort of cycles that we call bulls and bears. There is no linear progression to be expected from markets or individual stocks. They don't have maturity values either. Stocks represent businesses; and businesses are perpetual, although they have their own life cycles based upon which they live their life, and often vanish. If we don't learn these lessons, we will have tough time dealing with volatility; and then, we will not be worthy of profits to be made from businesses. 

Look at Facebook:

25 July 2018 was the peak time for Facebook when it traded at $217.50 per share; and the market cap was over $625 b. But then it fell sharply on July 26, the next trading day, and closed with a market cap of $509 b. That was a near-19% crash. Was it due to the release of earning reports and expected growth rates? May be, but at $137.42, it is not looking good in terms of its past performance. Is it a good buy now? Time will tell. 

Apple is better:

Apple is comparatively better as the stock price now is near where it started the year. That it is far away from its trillion dollar valuation may be some consolation for those who try to compare intrinsic value with market price. That it is far too dependent upon one product, iPhone, that the overall growth may not be too high, and that it has too much cash may have implications on its financial and market performance in future. That Warren Buffett is the largest individual investor in Apple does not make it a buy. Cash flows, growth, and risk are the things that matter more than anything else. 

Alphabet has a full circle:

Alphabet stock was just above $1,000 in February and March 2018. In July, it reached $1,285.50 (more than $850 b market cap). As of now, it is back to about $1,000 from where it will begin again. 

Amazon makes an exception:

Amazon started the year with $1,189.01 per share. The latest price is $1,629.13. That's a 37% upside. The market cap touched $ trillion quite briefly on 4 September 2018, but closed the day lower. Compared to that the market cap now ($765 b) seems like a big fall. The thing is, stocks in general are moving down, aren't they?

We cannot leave Microsoft out of the equation, can we?

That old horse is still riding far and wide. That Apple is worth about $750 b and Microsoft is about $780 b tells us something. With windows and office as stable businesses, and cloud computing as its growth engine, the combo looks interesting. 

The fun is in the game
With 10-year treasuries yielding 2.85% and 1-year yielding 2.68%, investors are looking for a decent premium. A 5-point premium would lead to the expected returns of about 8%. That much, I reckon, markets and large-cap stocks should be able to give. For anything more than that, investors will have to look deep. Value is there in every market; it is easier to look at it in hindsight though.

As of now, it is much wiser to ignore the gyrations of the market and concentrate on the individual affairs. If you are an index investor, just continue the process. No worries. If you are a stock picker, look at the individual stock prices and their intrinsic values, and ignore the broader market index. More importantly for every sensible investor, ignore the experts and their stories.