Shrinking stocks


The US stock market seems to be on a crash diet.

Over the last 20 years, 50%-plus of publicly traded companies have disappeared, the Wall Street Journal points out in an illuminating article.

 

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Consider that there were 7,355 US stocks in November 1997, according to data compiled by the Center for Research in Security Prices at the University of Chicago’s Booth School of Business.

Today, there are less than 3,600.

 

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Red Tape

Why the drought?

Research by Michael Mauboussin, an investment strategist at Credit Suisse in New York, has gained attention, according to an article by the Economist

Mauboussin, in a report titled “The Incredible Shrinking Universe of Stocks,” sees several factors at work.

They include regulations that make it less attractive for smaller companies to go public.

Venture capital funds allow new companies to put off listing to raise capital.

Then there’s the merger wave in recent years and private-equity funds that acquire companies and take them off the public market.

 

Takeaway

All of this may help explain why stock pickers have a harder time beating the overall market. There are simply less companies to choose from.

More broadly, the trend toward fewer shares could give rise to powerful corporate oligopolies that may harm growth over the long haul, according to the Economist.

A healthy equity market needs a steady stream of new players to stay vibrant in my opinion.
 
Photo Credit: sam valadi via Flickr Creative Commons

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Xavier Brenner
Xavier Brenner
Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.