Does the stock market have a limit to how high it can go?

CreditCardChris

Take individual stocks for example like Apple, it already has a market cap of $1.20trillion so from an investment perspective, since the height of the dotcom bubble it's risen 4917% so for someone who bought back then, even another 10% rise would be equal to a total return of 5420%.

As you can see a 10% gain for a new investor is a 503% gain for an early investor. So basically the higher the price a stock goes, the less desirable it comes to new investors. Yes Apple went up 4917% but even just 100% gain from todays price would value the company at a whopping $2.4trillion...

You can apply this to the entire stock market, take the S&P for example which has a market cap of $25.6trillion so for new investors today to even make a 100% return, the market could would be $50trillion...

Maybe I'm being influenced by the raw dollar value but do you really believe in the next 30 years the FTSE 100 could be worth like £10trillion and the S&P be worth $128trillion? (500% in 30 years)

As the value goes up, the potential for new investors to earn a reasonable return decreases. Imagine a silly but not unrealistic example where the stock market is worth $500trillion, even just 100% profit requires it to GAIN another $500trillion in value...

Thrugelmir

CreditCardChris wrote: »

Take individual stocks for example like Apple, it already has a market cap of $1.20trillion so from an investment perspective, since the height of the dotcom bubble it's risen 4917% so for someone who bought back then, even another 10% rise would be equal to a total return of 5420%.

Can Apple launch another product as succesfull as the Iphone. Which was only launched in June 2007. Well after the Dot Com boom.

Tomorrows "Apple" may not even exist yet.

quirkydeptless

This instructional video has an answer...

https://www.youtube.com/watch?v=qM5W7Xn7FiA

Linton

The FTSE100 could be worth £10Tn in 30 years. But how much will £1 be worth?

talexuser

Exactly, just because inflation's been relatively low for 10 years does not mean it will be low forever, particularly for fiat currencies with dubious central bank machinations.

[Deleted User]

Hi,

Thrugelmir wrote: »

Can Apple launch another product as succesfull as the Iphone. Which was only launched in June 2007. Well after the Dot Com boom.

Tomorrows "Apple" may not even exist yet.

here's the graph, click on Max, growth seems to coincide with Iphone launch.

CreditCardChris

quirkydeptless wrote: »

This instructional video has an answer...

https://www.youtube.com/watch?v=qM5W7Xn7FiA

Wow this brings back some memories.

benbay001

CreditCardChris wrote: »

So basically the higher the price a stock goes, the less desirable it comes to new investors.

Thats quite the statement.
I guess it depends entirely upon your tolerance for risk.
When Apple was first floated i imagine it was an incredibly risky stock. Now however, the company makes a consistent profit and has a healthy balance sheet.
I doubt Apple would have got anywhere close to being invest-able for me in the early days. Now however, i imagine it would.

Thrugelmir

benbay001 wrote: »

When Apple was first floated i imagine it was an incredibly risky stock. .

December 1980 was a very different era. No internet back then. Apple was Mac (PC) focussed. No phones.

IBM (Big Blue) was the master of the universe. With it's historic domination of the Main Frame market.

CreditCardChris

benbay001 wrote: »

Thats quite the statement.

Well it seems true for the reasons I mentioned. A brand new investor today will be incredibly lucky to make a return of 100% on their investment over the next 30 years because that involves doubling an already outrageous market cap.

Basically the higher the stock price, the more new money it takes to move it up more.

Investing in a company with a market cap of $1billion only requires $1billion of fresh money for a 100% return on your investment. A $1trillion company requires 1000 times that much for the same 100% return.

Thrugelmir

Hence why people are prepared to invest in unquoted start ups. Getting in the lift on the ground floor is key. How high the lift will rise, if at all, is unquantifiable.

Sports Direct traded at 6p in 1999 if you were prepared to take a punt. Currently around £3.45p. A £1,000 investment would now be worth around £57,500.