So by this theory the value of a tech startup is the developer's laptops and the value of a yoga studio is the loaner mats.
If Tobin were still alive, I think he would insist that intellectual property (read: code, patents, trademarks and software licenses) also be included. He didn't care about 'factories, machines and inventory'; he cared about 'replacement costs'. The author seems to have glossed over that bit for the sake of brevity and clarity, and in the process accidentally introduced a logic error, at least IMHO.
It is fair to say that stock prices are not representative of current value, but rather the long term value and growth the company has yet to realize. So in that sense, Tobin is right, but the growth the company has yet to realize is really just goodwill accrued as an asset. Meh. I'm rambling now.
That said, there is a pretty reasonable point that if bonds were returning 5 - 6% over 10 years rather than 1%, quite a bit of capital would move back into bonds and away from equities. That would put a lot of downward pressure on the price of equities.
It would be worth $0 most of the time, and ~100 million a minute during that outage.
(Rather than IP, let's say the laptop's TPM chip is what is necessary to get access to stop the outage, so it's tied to something real)
Indeed, I'm wondering why the quoted ratio is so low (1.10). Much of a company's value is in its customer and supplier relationships and these aren't tangible assets that can be sold.
Does anyone know?
Not just that -- from the article:
>> To Smithers, the ratio’s doubling since 2009 to 1.10
Having "the economy" be "worth" only 55% of its scrap value seems crazy...
In the case of low value businesses like Yoga Studios & Startups, yes the value is nil. For good reason -- a Yoga studio's only asset is it's book of business. You don't fire the employees and get any meaningful liquidation value. Ditto for startups -- startups are evaluated at future value... present value is laptops + IKEA Tables.
But we're not talking about Yoga studios, we're talking about Fortune 500 companies. When you are selling for more than you are worth, you'd better hope you keep delivering, because the market will punish you brutally when you slip up.
If you sold every share of every company in the U.S.
and used the money to buy up all the factories, machines
and inventory, you’d have some cash left over.
Where do you see a "theory" in that statement? I only see a calculation.