Well, we all know about the little mess that crazy Peloton (NASDAQ:PTON) bike commercial just caused. But, their chaos, gives us a chance to learn something about stocks, the stock market, and investing in general. Let’s see how: Ok, that crazy Peloton commercial caused so much noise that Peloton’s stock fell more than 10%. And now, we’ve got armchair analysts claiming that the commercial has ended up costing Peloton almost 1.5 Billion Dollars!
But, that’s noise: what should be important for you: is to understand that these outside news events can cause a LOT of harm to your stocks. Your portfolio will take a direct hit if you misunderstand the news and analyze the news the wrong way.
So, let’s think about it the right way.
We’ve heard the numbers: 1.5 billion dollars lost!
And we’ve heard about this “damage for the long haul” that this silly commercial has apparently caused for Peloton.
Well, I think that that’s all wrong; and, that’s not the proper way of thinking about stocks.
You know, it’s fun to get on the bandwagon and kick this around. But, a smart person like you should look at this problem and ask themselves: how can I take advantage of this situation? Does this type of news actually help me make more money?!? Always keep an eye on opportunity and see to look if others has misunderstood something.
First things First: when you hear such claims of huge gains and losses from the mainstream financial media…they’re just trying to click bait ya.
And, oftentimes, those folks don’t even know what the words mean and what happened.
So: FIRST: Did this commercial really cause the company to lose 1.5 billion dollars? Did that much money leave their bank accounts?
Well, it kinda depends on how you look at it.
First: where did the 1.5 billion dollar amount come from? What does it mean!?!
The term here is called the “MARKET Capitalization.”
Market Capitalization is found by taking the current: current price of shares and multiplying it by the number of total shares outstanding.
So, for example: if the share of a company is trading at 10/share and there are a million shares outstanding: Boom, there you go: that’s the value of your company. $10 million dollars.
But, does that number really mean anything?
So, on paper this company maybe with 10 million dollars; but, this number does not account for what your company may owe to the bank: it may not account of your other debts and obligations….it means something but, it does not cover everything. Market capitalization is not a complete way to value a company......continued in the video:
...continued from the video: Stay with me: and we multiply the 9 dollars by 1,000,000 shares; because, that’s the number of shares outstanding in your company.
Viola: your new market capitalization is $9,000,000.
So, tell me: does that mean your company just lost a million dollars? No, it’s just worth a little less than yesterday, because: the stock price fell by one dollar.
So, let’s take it back to Peloton. So, what these clickbait guys actually reported was the change in market capitalization.
Cause, look. Your market capitalization dropped by 10%, but really, no cash came in or left your bank account….so in a strange way this is just a made-up number to describe the value of things.
Now, what this little kerfuffle did do to the stock is that it dropped the value per share….and it actually make Peloton more attractive to long term investors and speculators.
This is where you starting thinking and separate yourself from the crowd. when bad news hits the stock: you need to find out if that news is worth something.
Did the loss, cost the company 1.5 billion dollars?
It’s false it did NOT.
How to think about stocks and investing:
‘Hey, is this bad news really bad news; and will this bad news, make it very tough for our company to grow or continue to sell things at the rate were doing?
On the other hand: you could ask yourself: hey, all this buzz, all this free advertising, will actually dive more customers to peloton. Or, at the least, not cause a lot of CURRENTLY customers to leave. Or, that maybe all this is just an overreaction to the news?
Some of you may take the position that the news is not that bad. So with that traders and investors, jump in an buy the shares at a cheaper price from where they were just a few day ago.
Also, our boy Ryan Reynolds got into the Action. He gave the actress a starring role in his gin…cause he’s smart! Why pay for advertising, when you can get it for free!!
Now, you’ve learned about Market Capitalization and how that’s not a good metric to measure the value of a company.
You’ve learning about what type of questions you should ask if sudden exogenous, news events happen
AND, You’ve learned that free advertising is a thing that people love!
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