An Endangered Species

In Stock Market by Landmark Financial Advisors, LLCLeave a Comment

No, it’s not an animal or plant that is facing a high risk of extinction.  It’s STOCKS…. publicly trading companies.

The number of operating companies investors can buy stock in, measured by the Wilshire 5000 index (Do They Change the Index name to Wilshire 3,678), has been steadily declining as firms are delisted, go private or are bought out. Meanwhile, the number of IPOs, which is supposed to replenish the stock market with new companies to invest in, has been weak and well below 200 a year.

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Dell, US Airways, Heinz and OfficeMax are just a few of the iconic American companies that this year announced plans to no longer trade as independent companies.

The number of publicly traded companies always ebbs and flows, but the current number has fallen steadily since at least 2000. At 3,678, the number of companies available for the public to invest in is much closer to the low of 3,069 in February 1971 than to the high of 7,562 in July 1998.

Public companies have been the locomotives of capitalism since they were invented in the mid-19th century. Public companies triumphed because they provided three things that make for durable success: limited liability, which encourages the public to invest, professional management, which boosts productivity, and “corporate personhood”, which means businesses can survive the removal of a founder.

Public companies are in danger of becoming like a fading London club. Their membership is falling. They spend their time fussing over club rules. And, as they peer out of the window, they see the bright young things heading elsewhere.

Capitalism…. is it going extinct?

Source: USA Today, Economist

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