When I was 15, I went on a wonderful Christmas trip with my mother and younger brother to Venezia. The fog was so dense over the Canal Grande that the palaces appeared one by one, like majestic ghost ships.
"That's Ca' Vendramin Calergi," my mother whispered as we vaporettoed by an elegant façade, marked by a wooden dock with two characteristic poles. "It's Venezia’s casino."
Frustrated by my underage status (a frustration I regret now, of course), I imagined a motorboat docking, and a man and a woman disembarking; he, clad in a cape hinting at a tuxedo underneath, and she, wrapped in a fur coat, the tail of her gown trailing behind her on the dock. They are in love, of course, and in a moment, they would surely be found at the Chemin-de-Fer tables, following ‘bancos’ against a duke and an émigré Russian prince.
Fast forward ten years to Las Vegas: my first time in a casino. I was finally admitted to those 'grown-up' games with green felt tables and croupiers who announced "rien ne va plus" in flawless French. But that romantic image quickly crumbled. After losing my 25 bucks in a flash at a Blackjack table where an elderly couple occupied seats five and six, I called it a night. The next morning, as I passed by the same Blackjack table on my way to breakfast, I saw the same couple, with the same chips and glazed eyes, still sitting at positions five and six.
Back to when I was 15—to when I first held a copy of the Financial Times in my hands. No laptops, smartphones, or tablets to check stock prices live, then. Instead, we relied on those newspaper pages filled with tiny numbers, often ending in fractions. Behind the small typeface, I imagined a scene not unlike the one at Ca' Vendramin Calergi, where mostly men, cigars nestled between their moustaches and beards, gathered and traded stocks—men like Benjamin Guggenheim, who gave up his seat on a Titanic lifeboat, dressed as a gentleman and prepared to die as one.
Fast forward to today’s stock market: a virtual trading floor where entire countries change hands every day, every hour, every minute—often not even real hands, just trading bots executing digital handshakes.
Allow me to explain.
They teach us that stock prices are meant to represent the present value of all future cash flows a company is expected to generate, discounted back to their present value—in short, the company’s long-term value.
Really?
On August 15th, NVIDIA’s shares closed at USD 122.86, giving it a market capitalization (the long-term expected value of the entire company) of USD 3.022 trillion. Interestingly, this was the same closing price as on July 23rd, 18 market sessions earlier. Which if we look back at the past eighteen working days sounds about right, with good news and bad news evening out, and not much news really. Everything stable.
Except stability has really not been he rule during those eighteen days. Just considering daily closing prices, NVIDIA’s long-term value assessment changed by an average of USD 115 billion each day—totalling USD 2.08 trillion over the period. Intra-day, considering the highest and lowest stock prices recorded in a single session, the market capitalization fluctuated by an average of USD 174 billion, or USD 3.14 trillion over the entire period.
Let’s pause to reflect on these numbers:
- Market cap of NVIDIA on July 23rd and August 15th: USD 3.022 trillion, roughly equivalent to France's GDP.
- Average daily variation in market cap between July 23 and August 15: USD 115 billion (comparable to Puerto Rico's GDP); aggregate daily variation: USD 2.08 trillion (equivalent to Russia's GDP).
- Average intra-day variation in market cap: USD 174 billion (the size of Ukraine's GDP); total intra-day variation: USD 3.14 trillion (again, around France's GDP).
Imagine it’s summer, and on July 23 we travel to a deserted island with no connection to the rest of the world—do such places still exist? We return on August 15 and check NVIDIA’s stock price, only to find it’s barely changed from when we left. Little do we know that, during those three weeks, at some point when we were off NVIDIA’s market capitalization had dropped to USD 2.33 trillion, USD 700 billion less than it is today. On August 5, NVIDIA was worth one year of Belgium GDP less than it was two weeks earlier, and what it is worth today, two weeks later.
Surely, a Martian might imagine that something monumental must have happened to the company for its value to drop like that. Perhaps a competitor from Saturn dramatically increased competition, or high-end graphics processing units suddenly fell out of favor.
Nah… It’s all fun, folks. Fun and money–huge money– changing hands. In this back-and-forth, the rich get richer, single investors likely lose out, and banks and other market makers meet their annual budgets. Just like in a casino, the house always wins.
I wonder: that couple at positions six and seven in the Las Vegas casino, do they have a brokerage account?
Voting machine vs. weighing machine. Read Ben Graham.