“The man who asks a question is a fool for a minute, the man who does not ask is a fool for life.” ― Confucius.

Hearing that Jeff Bezos has increased his net worth by $13 billion overnight, one can’t help but wonder – what is wealth? Is value real? How did Jeff feel that day?

Since the beginning of 2020, emotions have led the way and no other year has seen such volatility. On Thursday 12 March, the U.S. stocks plunged on their worst day since the 1987 crash, and just in April we saw a wave of optimism that led to a phenomenal 10 rally that we haven’t seen, ironically also, since the year 1987.

And if all this wasn’t already enough, we hear many economists telling us almost on a daily basis that the stock market is not following the rationality of the real economy. It is easy for us to look at Wall Street and say that the waves of euphoria, depression, and what comes in between guide the people who make a living there, but what if this was the state of normal affairs in all of the economy? The real and the unreal, if we may call it that.

Understanding Economy

In my opinion what almost everyone forgets, or maybe doesn’t even understand, is that the economy, in general, is based on trust and faith. Trust is the real currency that holds us all together as societies and markets. You buy something because you believe it’ll provide you what you want or need.

However, since emotions are hard to quantify, we end up searching for the numbers; numbers we’ve learned are the true measure of value. I am 191cm tall, and I weigh 88kg. A company is worth 1 billion. The truth is, however, that the company is worth as much as a bank is willing to lend it, as much as the investors are willing to provide it, in anticipation of profit. And as for CM and KG, they are part of the international system of units that was promulgated by the General Conference on Weights and Measures in 1960.

How much you are willing to pay for a product isn’t what it costs to make it, not even its price tag. Its value lies in how much we’re ready to spend on it. It’s that willingness and intangible value that makes an Apple product more expensive than any of its competitors, even though it serves the same function, and might, in many cases, contain the same parts as in any other phone.

In the rest of this article, I would like to use 3 examples to illustrate my idea, we will look at them in pairs. First, we will pair 2 companies, then 2 products, and lastly 2 economies.

Toyota vs. Tesla

Earlier this year, Tesla took over Toyota to become the world’s most valuable carmaker. Its market cap hit a record high in January, reaching $81.39 billion. Even now, during the COVID crisis, Tesla is still unaffected with its share prices rising higher and higher as investors continue buying.

So, are we to conclude that Tesla is worth more than Toyota; that it’s immediately more valuable because its stocks went up and surpassed Toyota’s? I wouldn’t be so quick to draw such conclusions.

Yes, on paper, Tesla is more valuable. However, when we compare the sheer volume of cars sold by the two companies, for example, the perspective changes. In 2019, Tesla sold around 367,000 cars. That was its record year in sales since it was founded.

On the other hand, we have Toyota, which sold almost 11 million cars in 2019. And guess what? it was Renault that outperformed both Tesla and Toyota in EV sales in Europe in the first half of 2020. So, how do we determine the value of a company? It’s evident that regardless of the numbers on paper, the overall value is calculated based on other factors.

So, what is Tesla’s valuation is based on? It is defiantly based on the faith of the future growth of the company and not the number of cars it is selling and manufacturing at the moment.

An iPhone 11 Pro vs. OnePlus 8 Pro

The story is the same with iPhone vs. OnePlus. Both Apple and OnePlus have released their flagship phones this year, at high prices, if I may add.

The ∼$999 iPhone 11 Pro and the ∼$899 OnePlus both have improved specs and features, and both are exceptional devices.

If we first took a look at the CPU of each of these devices, OnePlus 8 pro is equipped with Snapdragon 865, and the iPhone 11 Pro is A13 Bionic, when the 2 CPUs were benchmarked the Snapdragon made by Qualcomm outperformed the A13 Bionic.

The OnePlus outperforms the iPhone by life of battery, Ram, and Camera specs both back and front.

Yet when you look at the popularity of each device, the perception, and as stated above the price, the scale is tipped to iPhone. The iPhone is regarded as the most successful product in history as Apple has sold more than a Trillion dollars’ worth of it. Something that isn’t just explained by rationality but by the billions of dollars Apple has spent over the years to build that amazing brand, that people aspire to have a piece of.

American Economy vs. Chinese Economy

When we look at the broader picture and compare the value of the leading world economies, it becomes even more apparent that value doesn’t lie in numbers.

On the one hand, the US has a nominal GDP of $21.44 trillion, making it a global economic superpower. China has a nominal GDP of only $14.14 trillion.

China outperforms the US in the agriculture and industry sectors, but the US service sector is almost twice the size of China’s.

However, the USA’s purchasing power parity is at $21.44 trillion, while China’s is at $27.31 trillion. However, when we take into consideration the size of the population, China’s bigger PPC on paper seems to shrink.

Simply comparing all these numbers and percentages only serves to give you a headache, as it won’t provide any concrete answers as to which economy is better, which is more valuable.

The fact that remains is that the US has been a global economic superpower for almost a century, while China’s economy has fluctuated during that course. So, people trust the US economy more than they do the Chinese economy. It’s a matter of history, reputation, and experience. The numbers are important to draw comparisons between very specific aspects of the economy, but what people consider and value even more is their feelings and perception.

Now Back to Jeff

Of course, value is a complicated concept. A week back, it was announced that Jeff has bought a house next door to his current house that is worth $165 million, in Beverly Hills. He paid $10 million for the new one.

Wealth is not just a number. Wealth is a display of status, we show it through the ownership of valuable items, houses, cars, masterpieces of art.

So, the answer to the question at the beginning of the article was, I imagine, Jeff woke up that morning, he smirked to himself in the mirror and said…. What am I to buy next? Ha…

P.S. Jeff has sold $7 billion worth of Amazon stock so far this year.