The (untrue) Ronaldo-Coca Cola news
This post has come out of the blue, in the middle of the week. But I had to do this.
The whole of last week, the world was going crazy about this news, where Christiano Ronaldo, during a conference, kept aside a bottle of Coca Cola and advised people to drink water. Due to this, Coca Cola lost more than USD 4 billion in market cap (You can read the full story here if you want to know details). However, the news that drove netizens crazy is not true. Ronaldo had nothing to do with the Coca Cola share price!
Okay now don’t worry, I’ll quickly tell you what market cap is before we proceed ahead (if you know what it is, move on to the next paragraph). Market Capitalization (or Market Cap, for short) is nothing but the total value of a company’s outstanding shares. So if a company has 1 lakh shares in the stock market, and the value of each share is Rs. 20, the Market Cap of the company is Rs. 20 lakhs. (20 lakhs is a very small number - the market cap actually goes into billions of dollars for bigger companies)
Now, let’s see an analysis which Forbes did, and it shows why that news was just random:
The NASDAQ website shows that shares of Coca Cola had closed at 56.17 on Friday, 11th June. However, on Monday, 14th June (the day of the conference), the shares opened only at 55.69 - already lower than Friday.
Now, at 9:40 AM, the share price of Coca Cola had dropped to 55.26, already losing 4 billion in market cap.
But here's the best part - Ronaldo moved the Coca Cola bottle at 9:43 AM.
Which means that the shares were already down before he moved the bottle.
But social media was buzzing with the fact that Ronaldo caused Coca Cola to lose market cap.
It's a classic example of living in a post-truth world. "Post truth" is a philosophical concept which says that sometimes, people's beliefs are shaped more by emotion than facts. Because this news was "sensational", it was believable. Even though facts stated otherwise.
So, coming to data - why did the share price drop?
There are a hundred variables that can be attributed to this happening, and it’s difficult to pinpoint any one. However, some possible reasons could be:
The entire US stock market was trading at a low price at 9:40 AM on 14th June. Coca Cola was just part of the market, so it suffered as well
The shares of Coca Cola became ex-dividend on 14th June. Now, as we all know, some companies pay a dividend (which means a part of the profits) to share holders occasionally. But for Coca Cola, the Ex-dividend date was 14th June. This means that whoever bought Coca Cola shares after 14th June, will not receive dividend, as it has already been paid before that date. Now in this case, logic says that since the buyer of the share is not going to get a dividend, he will want to pay a lower price for the share. So the price of the Coca Cola share fell on 14th June. Ronaldo’s incident just coincided with the same date, and it turns out that the incident had nothing to do with the share price.
The stock market is tricky. It takes years to build expertise, and even after years, a lot of experts don’t get it right. It’s not their fault. There are a hundred variables to assess, and there is an “emotional” factor too that plays a role in driving share prices, which cannot be calculated.
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