Apple’s market valuation rose above $1 trillion on Thursday—a huge symbolic milestone. The business media handled the story in two predictable ways: First, it made far too much of what is ultimately a meaningless number (the odometer-flip is certainly worthy of note, but $1 trillion doesn’t mean much more in terms of Apple’s value than $999,999,999,999 does). And second, in several cases, it made grossly specious comparisons in an effort to put that eye-popping number in context.
Unfortunately, those comparisons did just the opposite, continuing a trend that that has been under way for years, and seems to be getting worse: business journalists mixing up stocks and flows. That is, confusing the difference between the value of an asset with the amount of money generated or spent over time. It’s a fundamental concept in finance that every high school graduate should be able to grasp. Sadly, many of those reporters—and apparently many of their editors as well—can’t seem to get their minds around it.
A simple way to conceptualize the difference: you might earn gigantic amounts of money, and yet, if you overspend, or take on too much debt, you can still be poor. Just ask Willie Nelson. Income is a flow. Wealth is a stock. They are not comparable to each other.
USA Today’s Eli Blumenthal wrote a story on Thursday, “Apple at $1 trillion: Putting Apple’s milestone into context,” that hewed to what has become a formula for takes like this: He compared Apple’s stock-market valuation to the gross domestic products of countries. “Apple’s market value would rank No. 17 if it was the GDP of a country,” declared one subhed in his story. Blumenthal noted that the company would rank just behind Indonesia, with its $1.07 trillion GDP. But that makes no sense. The apt comparison would be between Apple’s revenue and Indonesia’s GDP, because GDP is not a measure of wealth, it’s a measure of output: the total value of goods and services produced by the country in a year. Apple’s gross revenue in 2017 was $229 billion—an incredible number, but it’s less than one-third of the company’s market cap. And likewise Indonesia’s value—every asset in the country added together—is probably at least several times Apple’s market value.
Reuters, at least, got this right. On Thursday, it reported that Apple’s revenue is “greater than the economic output of countries including Portugal and New Zealand.” The key words there are “revenue” and “output.”
But USA Today’s erroneous approach is more common. Last year, Marketwatch compared Apple’s stock value, then at $803 billion, to the amount of goods and services generated in the city of Chicago in 2016—the gross metropolitan product (GMP), which was $581 billion. “If Apple Chief Executive Officer Tim Cook wanted to, he could, in a sense, make the Windy City his new corporate headquarters—all of it,” wrote Ryan Vlastelica, identified as a markets reporter for the Dow Jones-owned financial news site.
That’s not accurate, even “in a sense.” If Cook wanted Apple to own all of Chicago and everything in it, he wouldn’t pay the amount of its yearly GMP, he would pay the immeasurable value of all the assets in the city: the John Hancock building, O’Hare Airport, every bus, train, and track owned by the CTA, every corner store and Target, and every house and pencil and piece of lawn furniture in the city. He’d even have to buy the Picasso sculpture, which doesn’t really fit with Apple’s aesthetic.
Income is a flow. Wealth is a stock. They are not comparable to each other.
Thursday’s USA Today story similarly described what Apple could “buy” with the money represented by its market cap. But that’s not Apple’s money—it’s owned by shareholders. If Apple wanted to use its outstanding stock to buy the several huge companies that USA Today said it could now afford, it would have to first purchase all of its own stock on the open market—which would be impossible. Even with its gargantuan cash hoard, Apple doesn’t have nearly enough money or assets to buy that much stock. Its latest annual balance sheet, from last September, showed the company to have about $20 billion in cash, and $375 billion in total assets—cash plus buildings, inventory, desks, phones., etc. Assuming Apple’s assets are still at roughly that level (the latest available figure), if it sold everything it owned, it would still fall about $625 billion short of the amount it would take to purchase all of its own stock and buy the things Blumenthal said it could buy, including 1 billion iPhones Xs. Apple, Blumenthal wrote, “could go out and buy” Netflix, Disney, and AT&T.
Asked for comment, USA Today’s deputy money editor David Brinkerhoff, writes: “The goal of this article was to put a huge number in context for general readers. We have clarifying language in the story to ensure accuracy, as always. That said, this was not the only Apple story we wrote Thursday and does not reflect the breadth of our coverage.”
Such stories are rampant. There were several just on Thursday, riffing on the Apple news. The Guardian did it. So did Gizmodo. Business Insider’s Graham Rapier, trying to describe just how much money $1 trillion is, wrote: “Apple now has a value greater than the gross domestic product of all but 26 major countries; its value is higher than the GDP of Argentina, the Netherlands, Sweden, and Switzerland, among others, according to the CIA’s World Factbook.” Of course, the CIA’s World Factbook does not mention Apple.
And this has been going on for years. Fortune did it in 2012. In 2015, Inc. magazine compared the value of the housing stock in the United States to the European Union’s GDP. The headline on a Bloomberg article last year read: “Bitcoin Is Now Bigger Than Buffett, Boeing and New Zealand. That article compared the cryptocurrency’s value (accurately) to the market caps of various companies and to the personal wealth of various rich guys, but also (inaccurately) to the GDPs of various countries. In a particularly egregious example from 2011, Business Insider listed a whole bunch of “Things Apple Is Worth More Than,” mixing up stocks (for instance, all the gold held by the New York Federal Reserve) and flows (for instance, the total yearly revenue of the entire US clothing industry.)
Yahoo Finance earlier this year declared that Charles Koch was “worth more” than the GDP of Slovenia (which doesn’t even sound all that impressive). When Quartz published a chart in 2014 comparing Norway’s oil fund (a “stock,” or an asset) to various countries’ GDPs and to the yearly output of Saudi oil (both flows), the financial writer Felix Salmon took to Twitter to write: “Do. Not. EVER. Compare. Stocks. And Flows. #HULKSMASH.”
— Felix Salmon (@felixsalmon) August 21, 2014
The aim of these stories, at least ostensibly, is to try to help people understand the magnitude of such numbers. But by making these erroneous comparisons, they do just the opposite. Then there’s the wider issue of comparing private businesses to countries and their governments, which would be problematic even if the market-value-to-GDP comparisons were apt. We already have a big problem with people believing that the government should be “run like a business,” and with handing enormous amounts of power over to huge, self-interested, private enterprises. The more business journalists conflate public and private in this way, the worse that problem becomes, and the more we all tend to think of citizens as mere consumers.