A basic lesson in economics so you can think better about money, investing, and your life.

Everyone is going wild about Apple hitting $1 trillion.

That’s what its market cap is at right now.

I get it. There’s never been a company worth $1 trillion by market cap. My gawd. What a world we live in. Maybe Buffett was right:

“Today’s babies are the luckiest crop in history.”

Let’s take a step back. I love saying that phrase now. The other weekend I found myself with a good friend and his entire consulting crew. The inside jokes in that world were all new to me. I love inside jokes. “Let’s take a step back!”

A company does not magically hit $1 trillion. There’s a simple formula behind it, and it’s often forgotten. In the case of Apple, let’s start at the very core of this concept. There are 4,829,926,000 shares of Apple outstanding. These shares are traded, held, bought or sold each day. A share of Apple is traded at any moment and the price is quoted in real-time from 9:30 AM ET to 4:00 PM ET. Go ahead, open your Interweb, type in, “the price of AAPL.” Boom. That’s how much a single share is going for right now.

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Next, take that number and multiple it by the number of shares outstanding. When Apple first hit $1 trillion, each share traded for $207.05. So $207.05 x 4,829,926,000 shares is equal to about $1,000,036,178,300.00. That’s the whole pie. If one share is going for $207.05, theoretically they all should go for $207.05. That makes the entire pie in the sky called Apple worth $1 trillion.

That’s how Apple got to $1 trillion. It simply all came down to how much the market was willing to pay for a single share at that hot, sunny, and humid day in the summer of 2018. But here’s where things get a little more complicated. And here’s where everyone needs to step up their basic understanding of capital markets and economics.

One trillion dollars today is not what it was five years, 10 years, or even twenty years ago.

“I sometimes ask myself how it came about that I was the one to develop the theory of relativity. The reason, I think, is that a normal adult never stops to think about the problem of space and time.” — Albert Einstein

Space and time.

Let that sink in.

There are similarities in the hard sciences that perfectly relate to the markets. Maybe that’s why quant funds are running the market these days. No one can compete right now with them.

A stock moves throughout time. Its shares are traded and exists within the context of society at any given moment. One way to think of that is to imagine what $1 trillion means today relative to $1 trillion 15 years ago. Without context, simply saying $1 trillion or exclaiming it across Twitter and on newspaper headlines is practically meaningless. It is an abstraction. Be careful of this.

Albert Einstein saying, “don’t forget relativity b.”

Let me now get to the example I have been meaning to get to. This is primarily geared at people who can’t grasp a company worth $1 trillion. I like to often remind myself that the first bubble is never the last and that it can always get worse or it can always get better.

If you you adjust Apple’s market cap to reflect what was happening during the DotCom Bubble of 1999, the absolute peak of tech euphoria, a moment that will live in all history books forever, $1 trillion today would translate to just $661 billion. I say “just” because whoa, that’s a 33% difference. At the peak of the DotCom Bubble, Microsoft crossed the $600 billion threshold.

So in 1999, when there was less connectivity, less prosperity, less total money in circulation, less credit, and basically less everything else, a company managed to hit $600 billion. Now that’s impressive. If you adjust Microsoft’s milestone in 1999 to reflect today’s dollars, its market cap would be $910 BILLION.

Now here’s where things get even more interesting. When Microsoft hit that level, it was doing about $19 billion in annual revenue. When Apple hit that level, it was doing more than $200 billion annual revenue. That means if we valued Apple at the same price-to-sales ratio as Microsoft back then, Apple would be worth about $8 TRILLION.

Relativity, man.

The lesson here is one that cannot be stated enough. It’s one that everyone should be thinking about. It presents opportunity, it displays a more clear picture, and it’s a healthier way to think about markets and money. You need to apply relativity to the markets. One way of doing that is by adjusting certain numbers for inflation and comparing the differences in time and space. Thank you, Einstein. Thank you, Jobs. And thank you Mr. Market for always making this stuff fascinating.

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I also write on my personal blog scheplick.com and on my markets hobby page exploringmarkets.com

What $1 Trillion Really Means was originally published in Luchini In The Air on Medium, where people are continuing the conversation by highlighting and responding to this story.