There are fewer stocks listed on public stock exchanges than there used to be. Why is the stock market shrinking? According to USA Today investors are worrying about the shriveling size of the market.
The stock market is shrinking fast. There are now fewer stocks for investors to choose from than in 1979, leaving 401(k) plans, investment plans and other investors with fewer options from the market.
Just 3,659 stocks trade on public markets available to investors, based on the Wilshire 5000 Total Market Index through August, the latest data available. That’s down 3.1% from 2015 and half the number of actively traded stocks available than at the peak in 1997, Wilshire says. The Wilshire 5000 is an index designed to track the stock market’s entire value.
According to USA Today new companies are not going public but rather looking for other ways to raise money. Why is that? And what will the effects be?
Buyouts and mergers reduce the number of stocks available to investors. Business Insider writes about the agricultural merger mania and its effects on smaller operations.
The U.S. Justice Department is looking into concerns that global consolidation among major seed and agricultural chemical companies may squeeze supplies of the building blocks for widely used genetically modified seeds, a farm group told Reuters.
The department has asked the American Soybean Association for details about how small and independent seed companies license seed traits from developers, said Steve Censky, chief executive of the association.
The federal inquiries started after Dow Chemical said in December that it would seek to merge with DuPont in a $130 billion deal. In recent months, department officials have also asked how farmers select seeds, Censky said.
Small seed operations are making an argument that mergers will hurt the seed stock. Investors should make the argument that with fewer stocks to choose from it hurts the market.
It used to be that when a company got to a certain size and had prospects for growth that it issued stock in order to raise more capital and reward those who had started the company. But there have been fewer IPOs as companies have sought funds elsewhere. This means that investors can be a little crazy when there are new IPOs, especially in the tech sector. Bloomberg writes about current tech IPOs.
I never imagined I would write this sentence: Technology IPO investors have gone almost as crazy as the private financiers throwing wads of money at tech “unicorns” like Uber.
There have been so few technology companies braving the public markets this year that investors are pouncing on the tiny handful of fresh listings like hungry wolves. They are driving up stock valuations to overheated and potentially unsustainable levels for many new public companies.
In fact, a rational explanation for the currently overvalued market in general might just be that we have too many investors chasing too few stocks.
Private Ownership Means Private Control
When Michael Dell took back the company that he founded he took it private. This allows the owners to do when they want without being answerable to shareholders or for that matter to takeover artists who demand a rapid return on their invested capital regardless of the intrinsic value of the company.