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

196 Folder Collection
洪子雯 published on July 22, 2019
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