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The Stock Market is Shrinking

September 18, 2017

It’s getting more and more difficult to choose investments these days. The possibilities seem endless and it’s not getting any easier as time goes on. Now, you’d think I was talking about individual stocks. But no, I’m talking about stock indexes. They’re often traded as exchange-traded funds (ETFs), which are singular ticker symbols comprised of several holdings. ETFs are often marketed as essentially being mutual funds that trade like stocks.
 

Well, indexes are taking over. Since 1995, the number of listed stocks has fallen by nearly half, and now there are more indexes than stocks. That seems odd to me, but it’s true.

It means less companies are going public. Why?


The financialization of the markets for one thing. It’s cheaper for companies to buy competitors than to actually compete. For that we can thank cheap capital and central banks. When cash is cheap, buy your competitors.


Another big reason is over-regulation. It’s harder for smaller companies to go public because of the regulatory requirements. Several companies right now could go public at huge valuations – think Airbnb, Uber, Pinterest and more. They’re valued at billions of dollars each. But they don’t because they know the headaches involved.


Congress should get a handle on that situation. But, our politicians can’t even do simple stuff like solve health care with a full majority. So it would be wise to temper expectations.

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