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  • 00:00:05,340 --> 00:00:07,650 The number of companies listed on US stock markets

  • is shrinking.

  • I'm going to explain what's going on

  • and why it might spell trouble.

  • 00:00:17,450 --> 00:00:20,230 So this line shows the number of publicly listed companies

  • in the United States.

  • The data comes from the World Bank.

  • It goes all the way back to 1980 now.

  • As you can see, in 1996 this number peaked around 8,000,

  • but since then has fallen to around 4,400.

  • So that's a decline of about 45 per cent in just over 20 years.

  • 00:00:40,860 --> 00:00:42,280 So what's happening here?

  • Well, one thing has to do with private equity.

  • Now, investors are putting a lot of money into private equity

  • firms lately.

  • And that's because they think that it

  • will get them more returns than other markets will.

  • Private equity firms, they take that money and they

  • turn around and buy companies.

  • So this happened recently with Barnes & Noble, the bookseller,

  • which was a public company.

  • But it was bought by a firm called Elliott Management.

  • Now, Elliott is actually a hedge fund.

  • But the fact that it's playing around in the private equity

  • space should tell you how much money is going into that space

  • right now.

  • Now, a second thing that's happening

  • is that companies that could newly list themselves in IPOs

  • don't necessarily have as much incentive to do that, firstly,

  • because they can still raise that money,

  • like I said, in private markets.

  • Maybe it's a late stage venture capital round, or again,

  • private equity.

  • But also, they don't really have incentive,

  • because they are under a lot more scrutiny when

  • they're public companies.

  • And as a public company, you have

  • to disclose more information.

  • So if they can avoid the hassle and still get the money,

  • why list themselves?

  • A third reason has to do with mergers and acquisitions, which

  • have been quite high lately.

  • And that's pretty self-explanatory.

  • When one company acquires another,

  • two companies have become one.

  • And therefore, you have fewer public companies.

  • Now why is this a problem?

  • Well, I like to think of the stock market

  • like a pond and the companies that are listed like fish.

  • And the money going into the stock market

  • is like food to feed the fish.

  • But then one day, let's say you take half the fish out

  • of the pond.

  • 00:02:20,930 --> 00:02:23,390 If the same amount of food is going into the pond,

  • then these fish are going to eat it,

  • and they're going to get a really big, because there's

  • less competition.

  • So this is the same thing that potentially

  • is going on with the stock market, which is

  • that you have fewer companies.

  • They have less competition.

  • There's less companies available for the public

  • to put their money into.

  • So the prices of those companies tend

  • to potentially become inflated.

  • Now, this is causing a little bit of concern.

  • Even regulators have talked about it a bit.

  • But frankly, the trend isn't going to reverse itself

  • until the public markets become a popular pond for companies

  • to swim in again.

  • And until then, they may just get bigger and bigger

  • until they finally pop.

00:00:05,340 --> 00:00:07,650 The number of companies listed on US stock markets

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Charts that Count: Why the US stock market has shrunk by half

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    洪子雯 posted on 2019/07/22
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