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Stocks Almost Half What They Used to Be

September 10, 2018

I’ve mentioned this before, but it’s getting worse – the number of publicly-traded companies in the U.S. is shrinking at an alarming rate.

 

Most investors don’t know this: since 1996, the number of publicly-listed companies has dropped by nearly half.

 

Back then, there were 8,000 firms listed on American stock exchanges. Today, that number hovers at 4,336.

 

This phenomenon isn’t limited to the U.S. either. It’s happening in Canada, Switzerland, Germany, the United Kingdom, and other developed nations.

 

There are 20 to 60 percent fewer public companies across the globe than there were a couple decades ago.

 

A few reasons why stick out.

 

First and foremost is that’s it never been particularly enjoyable to be a public company. Regulations from government and industry are time-consuming and expensive. Shareholder and investor relations duties add to that misery. Ultimately, it can challenge competitiveness.

 

A modern example is Tesla. Elon Musk was going to take it private, saying it was the best path forward because it allowed focus on the mission (i.e., shed the duties required of public companies).

 

While he ultimately reversed course and decided to keep Tesla a public firm, the reasons for going private remain.

 

Another reason for fewer firms on exchanges is companies can raise capital through venture capital or other institutions. They don’t need to go public anymore.

 

Unfortunately, this denies most investors access to innovative businesses. Think about it – only a handful of investors are benefiting from the growth of companies like Uber and AirBnb.

 

And of course, all the recent merger and acquisition activity has consolidated industries, removed competition, and maybe even caused wages to stagnate. Leveraged buyouts took many public firms off the market.

 

Maybe this is why indexed investments are so popular.

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