Caps and crashes

Q

What’s a company’s “market cap”?

— T.W., Muskegon, Michigan

A The term is short for market capitalization, which reflects the company’s total value in the stock market. It’s calculated by multiplying the total number of shares outstanding by the current share price.

Consider Apple, for example, which was recently trading around $150 per share. To find its total shares outstanding, you might check out its latest financial statement. Or check out websites such as Yahoo Finance, which include shares outstanding among the company statistics they offer. Multiply Apple’s recent share count of 16.5 billion by $150 and you’ll arrive at its recent market cap — about $2.5 trillion. That figure can give you a sense of whether the company is overvalued or undervalued, if you compare it to past levels or to peers.

Q

If I’d invested $1 in the stock market after the 1929 crash, what would I have today?

— F.E., Abilene, Texas

A

The crash of 1929 took place over many months and continued beyond 1929. The Dow Jones Industrial Average (“the Dow”) peaked in early September 1929 at 381. It initially plunged in October, falling by 12.8% on Oct. 28 and then another 11.7% on Oct. 29, when it closed at 230. It rallied a bit but continued a long descent, falling to 41 in July 1932. At that point, it was down some 89% from its high. It took 25 years, from 1929 to 1954, for the Dow to hit its previous high of 381 again.

With the Dow recently around 35,800, it’s up some 86,800% since that low of 41 — enough to turn your $1 into $869, at an annual average growth rate of roughly 7.9%. And that doesn’t even include dividends!