Also - in case anyone besides myself was wondering, I did some calculations regarding stuffing one trillion dollars under a mattress. Assuming your currency is $100 bills and you have a queen-size mattress, I get a money stack height of around 2.27 miles.
When waking up, watch that first step - it’s a doozy!
To put it in more… personal? relatable? terms, a person might have a net worth/value of $500,000. That doesn’t mean he has $500,000 sitting in his bank account, or that he makes $500,000 or anything like that.
What he might have is a $75,000 income, a $250,000 home, a $200,000 retirement account, and $50,000 in assorted other things of value including his bank accounts.
So Apple’s total worth is a trillion dollars, only some of which (a very BIG some) is cash that is spendable. Most of it is essentially the market valuation of its outstanding stock- in other words, a lot of people who want to buy Apple stock collectively think it’s worth a trillion dollars as a company.
I doubt that Apple’s revenue is going to crash to the extent that they burn up all their cash in payroll. Reserves are clearly good, but there is way more in reserves than makes sense as a cushion now. Remember how Microsoft was pressured to pay some of its cash reserves to shareholders?
They have plenty to invest if they had a good business case for investment. That makes sense, and my argument is not with the companies but with those who cut corporate taxes to pay for investments which are not getting done with the cash reserves they have.
I think that got pointed out already by lots of people.
Again, the problem isn’t with companies, it is with people who tell us that the rich are doing so much for the economy by investing in the market. Someone investing in venture capital, or directly in a start up, is helping innovation and the growth of the economy. Someone putting money into the market, not so much. In fact if they are contributing to a bubble which will eventually burst and result in reduced consumption and investment, they may be hurting, not helping.
Or will be worth a trillion dollars.
Say you set up a stock fund where people by n shares of you which allows them to split up your estate n ways when you die. If they bid up shares of your estate, because perhaps they think you own artwork that they think will be valuable in 20 years, it doesn’t do you any good at all. If the value of the shares is now 10X what you sold them for it doesn’t do you much good either, unless you held on to some of them.
I don’t know what Apple’s net worth is, but it sure is a lot less than a trillion bucks.
The difference between the private wealth of an individual with investments and real estate and a public company (that with openly traded stock) is that the former has a relatively fixed valuation which is subject only to market fluctuations and personal aptitude in investment that doesn’t really affect anyone other than hangers-on and heirs, and the latter is subject to the fungible whims of investors which can collectively sail or sink a fiscal vote without having any real insight into its ultimate viability.
An example of the is is Tesla, which is at a valuation comparable (and briefly higher than) the other major American automakers and in competition with automakers worldwide even though even its most optimistic output is at a boutique level compared with other manufactures. Even if Tesla is as completely as successful as its own projections, it will take record growth over more than a decade to justify the valuation which seems unlikely at best. But a public entity can float on reputation alone, whereas a private investor is limited by the realistic growth of investments. Realistically, Tesla will never realize it’s estimated valuation, but as long as they can string along investors (who have enough sunk costs at this point to wish it to be the next Daimler, Honda, or GM) it will continue to appear to be extraordinarily valuable.
Apple is actually valuable because people continue to buy their actual products, even if not at the record rates of the late 2000s, and its future valuation is mostly based on performance (although radical shifts in computing and media technologies could undermine it). It is generally a bad idea to maintain more cash reserves than necessary for operating capital, just because that is money going to waste, and it is generally better to use OPM (Other Peoples’ Money) to invest in expansion and new ventures (which also offers tax advantages) but in the case of Apple they have so much cash on hand that it would be difficult to invest it without influencing markets. It should be noted that the valuation of Apple, Inc has increased by over two orders of magnitude over the last fifteen years, which while not wholly unprecedented is remarkable in absolute figures. It also presages a potential fall from grace greater than any commercial interest before it if it is not able to continue to innovate, a fate that has befallen every other technical company come before it ever; the current disintegration of General Electric being the most pertinent example.
Stranger
The percentage of cash to total assets that a corporation maintains has little to do with total market capitalization (Apple’s 1 trillion.) It has more to do with the likelihood of unexpected developments that could endanger the company’s earnings or market value, or operational nuances. Banks in some countries are given strict standards for liquidity and are forced to invest in liquid Government securities, or short-term placements with the Federal Reserve or Central Bank. Not all of their deposit funds can be lent out or invested into something. In the case of very high competition (say pharmaceuticals), the company sets aside money to spend for R&D. If the business is very sensitive to interest rate or foreign exchange changes, it could invest in certain currencies, or hedge some other way, like derivatives. Universities are often cash-rich, unless they are expanding. Otherwise, their money is invested in securities and taken out to fund research, or offer scholarships. A school like Harvard can afford to offer big discounts to half of the matriculating students.
I know one particular type of business (in my country) that keeps lots of cash not just centrally but in various branches: bus companies. They pay for their fuel, spare parts, and tires using free cash.
Oh, absolutely. That’s kind of where I was trying to go with the last sentence of my post. Ultimately corporate valuation is based more on perception than hard numbers, unlike personal wealth.
Only reason I posted at all is because a lot of people don’t quite get the difference between net worth and income. We see it in every single thread that advocates taxing the rich to pay for something thread that comes down the pike- people assume that since Warren Buffet’s net worth is something like 81 billion dollars, that he somehow has a huge income as well. That’s not the case- his actual take-home is something like 40 million. Which isn’t chump change by a long chalk, but it’s also not what those dumb-ass articles that confuse net worth gains with actual income are saying either. He didn’t “make” 2 billion or whatever; his net worth went up that amount, but he can’t spend it unless he actually sells those shares of stock, bonds, or whatever. Until he does that, the gain in worth is more like a potential gain than anything else. IF he sold today, that’s what they’re worth. But if he waits a year, they could be worth more or less.
The difference between owning a billion dollars and owning a company that’s worth a billion dollars is that you can’t spend a company.
Of course how much Bill Gates or Warren Buffet could actually come up with on short notice isn’t necessarily the same thing as their disposable income. And even if they actually had it in cash that’s still just green pieces of paper that are only valuable because the entire economy is essentially a giant game of hot potato; market crashes are when the whole system develops the equivalent of grid lock, when everyone is waiting for someone else to come up with some money first. Even gold itself is just shiny pieces of metal you can’t eat, burn to stay warm or make practical clothing out of; it’s only valuable because other people are willing to trade you their stuff for it. The Donald himself showed that you can be a billion dollars in debt and still be “rich” as long as you can juggle payments on what your owe against your cash flow.
I agree there’s a valid point there, but the actual numbers in that case show how it’s not as clear quantitatively. It’s true AFAIK even Buffett’s 2011 adjusted gross income was ‘only’ $63mil when he was ‘worth’ something $70bil at at that time. Ie taxable income .1% of net worth. Obviously therefore his investments are structured not to throw off taxable income. If $70bil were in 10yr treasuries it would throw off ~$2bil/yr in taxable income even in today’s low interest rate environment. Invested all in the S&P 500 (as Buffett tends to suggest in do-as-I-say-not-as-I-do mode) it would still be north of $1bil just from dividends.
IOW there’s a significant fungibility at the margin between ‘paper gains’ and ‘real income’ in terms of asset allocation (bonds v stock v real estate etc) and company dividend policy (when it comes to stock). Berkshire Hathaway doesn’t pay dividends basically, and that’s where Buffett’s wealth is basically.
For any given level of wealth/value there’s some rate at which you can liquidate it without reducing the value in the long term, corrected for inflation. Though if you don’t liquidate any of it, it will increase in value over time. All for a given level of risk. So as illustrated by Buffett it would be a false distinction to say he was ‘spending his wealth rather than receiving income’ if he sold 2% of his BRK shares every year as opposed to simply holding a fixed number of shares of a ‘typical’ company which paid a 2% dividend rather than 0%. Even if a person sold some of their 2% dividend paying shares every year they might still have more inflation adjusted value in the long run, or at least past returns would have had that result: the real return on stocks has exceeded the dividend yield, though there’s no gtee it always will.
But back to Apple, and even aside from the fact that share price would drop if everybody sold their shares, you really can have $100mil today if you own $100mil of Apple at today’s price, selling that much is not enough to move the stock price much, if done discreetly. But then you don’t have ownership in the future value creating potential of Apple. You then either consume the $100mil, on depreciable or consumable goods and service, hookers and blow, or by actually wasting it 
(as was once said) or invest it in something else. You can’t consume the value and also still have it, simply. And that applies in principal to the whole $1tril as well.
Yes, but I’m not talking about just extreme cases. Even in normal day-to-day business, people have to recognize there’s a difference between owning a company and owning money.
A person who owns a billion dollar company may only have a salary of a $100,000. That person’s not going to own a yacht or a mansion even though he’s technically a billionaire. He’s not going to live the billionaire lifestyle until he begins converting the value of his company into cash and spending the cash.
This is a useful analogy, although it’s not quite right. A closer analog to net worth of a company is it’s book value: The value of all its individual assets added together, less its liabilities.
The market cap of a company is the collective estimation of the future income streams of that company, today. This is almost always larger than its book value (when it’s not, it indicates that the market has a rather dim view of the management of the company or its line of business).
Going back to the idea of an individual. Let’s say there are two different people, each with a net worth of $500,000. One of them is young, single, and has a good job and is making $100,000 a year. The other one is unemployed, 50, and has three dependents to support.
They have the same net worth, but if they were to, say, sell off a percentage of their wealth, payable in 10 years, the first guy would be worth a lot more on the market. That’s the difference between net worth (or book value) and market cap.
Note that this analogy isn’t quite right either, since book value generally doesn’t include intangibles like “brand”, but it’s closer.
And as for what Apple does with all this money: It makes computers and phones. Quite a lot of them, and pretty nice according to many people.
You’re right- I was going for a very simple analogy, not trying to make it particularly accurate.
Indeed. My post was merely meant to nuance your description of Tech companies. Yes, for many of them the IPO is about cashing out (or at least turn some of their net worth into cash), but they still have a step where they raise money for development and ask outsiders to take on some risk in exchange for shares of the company, it’s just that it consists of wooing VCs rather than the full stock market.
You folks are missing the obvious. Whatever proportion is cash, it’s not sitting in physical dollar bills; it’s in assorted bank accounts, earning interest, and to earn the money to pay that interest, those banks are loaning it out at a premium - and a profit.
Yeah, but the point is that if the company could find a better internal or external investment that those bank accounts, they would make them. Leaving enough cash for an appropriate cushion, of course.
Also, if their investment will return more than the interest rate they can borrow at, it makes sense for them to keep the cash and finance the investment using debt. Apple actually has a good bit of debt - not nearly as much as its cash.
Here is an op ed column from the Times about this.
So… A stupid naive question… If an individual walked in with a trillion dollars, plus twenty percent extra to sweeten the deal (and it was all legitimately his, of course), and said “Good day, I have this much cash with me this morning and I’m interested in becoming sole proprietor of Apple” - would anyone know how to react?
Walk in where?
Apple shareholders are worldwide. There’s no single place a person could go to “buy” all of Apple. They would have to arrange to buy the shares of every single stockholder, and many shares, if not most, would not be for sale. Most of those stockholders won’t be employees of Apple or even associated with the company, other than by ownership. Many are just normal people and you could well live next to or work with several.
It’s not a great analogy but think about buying a used car, say a 2008 Toyota Camry in good condition. That car has some kind of perceived market value, but that doesn’t mean you can find one in a parking lot, offer the owner that price and expect to walk away with the car. They may not want to sell at all. Or maybe they’re willing to sell but for a different price. But if you made the same offer to 100 people, you’d probably find a taker.
Banks aren’t lending out quite a bit of it. They are sitting on massive cash reserves themselves, it’s coming down, but still nearly 2 trillion.
I don’t know the exact bylaws of Apple shares, but it is indeed possible to force shareholders to sell their shares even when they don’t want to in some circumstances.
Companies can be acquired or go private, and in both cases, shareholders can be forced to sell.
I don’t know if a 20% premium would be enough, but if someone really did have $1.2 trillion burning a hole in their pockets, they wouldn’t have to convince every shareholder to sell. They’d just have to convince the board.