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  • WSJ article on decreasing # of publicly traded companies

    http://www.wsj.com/articles/americas-roster-of-public-companies-is-shrinking-before-our-eyes-1483545879

    For us Bogleheads, what are people's thoughts on the lack of access to companies that are actively avoiding being publicly traded?  I keep reading expectations (here and elsewhere) that everyone thinks market returns will be lower in the future, but I've never seen this mentioned as one of the reasons why.

    While it seems unlikely to be a problem for most of us in the short term, if more and more companies adopt this strategy, over time it could negatively impact the ability of the average investor to actually have access to many of the gains made in the US economy.
    An alt-brown look at medicine, money, faith, & family
    www.RogueDadMD.com

  • #2
    It could be a problem for sure. I didnt read that article, but Morgan Housel, as usual wrote a fantastic article discussing just this concept. We will see how it impacts things going forward. Otoh, all the companies that we think of Uber, Theranos?, Airbnb, etc...so far havent shown themselves to have a viable business model and are just cash burning (maybe exception of Airbnb) and tax avoidance schemes, as well as likely a few frauds (theranos).

    Something will have to be done about the big tech monopolies that are keeping outside disruption to a low with their cash reserves, facebook, google, etc...Likely will happen in intermediate future as concern is growing.

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    • #3
      Interesting article.

      Once rates go back up, an IPO becomes a lot more attractive.  There is too much cheap money available.

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      • #4
        If more companies do not go public it effects the wisdom of indexing as the only thing you need to do!

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        • #5
          This was a big thing on FinTwit last night, and some interesting charts popped up. Yes, regulatory stuff is absolutely oppressive for mom/pop type businesses and they could go a long way to making it easier to start one for small businesses. However, there was a huge surge in businesses during the 90s dot com boom that has been going down ever since. That was the real outlier though population adjusted its still a slow decline, but looks more like a big boom of non profitable fake companies are tilting the numbers, not unlike unicorns today.

          What hatton1 mentions is also important and concerning, but we might be near a low in IPO/business formation if the new admin has suddenly shifted perceptions about the future and business ease.

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          • #6
            From a paperwork standpoint, I can tell you that paperwork to satisfy the regs etc on just offering a stake in your small business to a 3rd party can be prohibitive.  I've worked on files with easily over $10k of that sort of work before, and we're not talking anything remotely on the scale of an IPO.  "Mom and pop" doesn't do an IPO.

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            • #7
              I don't think the number of publicly traded companies affects the wisdom of indexing vs. active management as long as you accept the theories that lead to prefer indexing-that the future is unknown, that even the best money managers don't best the index consistently over the long term, and that the fees involved in active management eat away all the potential gains of doing so. Deciding on the wisdom of investing in secondary stock market vs venture capital is a different question and more relevant to the proposed situation where large companies remain private.

              As an aside, I file this under the "the journalists have to make copy somehow" pile. There have always been large companies under private management. There are positives (influx of capital for growth, ability of owners/venture capital to liquify ownership) and negatives (public scrutiny and regulation, potential loss of control of the company) to going public. Each company will figure out if/when to do so in its own time, and they will be dutively added to the indexes if appropriate.

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              • #8
                So my question is, what is the benefit of a company going public ? Seems like legally alone it's a nightmare and sec would be on you for any thing investor related. Basically wouldn't it benefit companies to just stay private ? I suppose venture capitalist want to take company public for their profit but the more I read about it seems to be losing proposition. If the article is correct it will affect investors overall not just indexing I think.

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                • #9
                  Back in the day, going public was legitimately about raising additional capital for expansion. You've probably noticed most recent IPOs (particularly tech companies) have no shortage of cash on hand when filing the paperwork. Nowadays, IPOs are primarily for rewarding mid/late stage investors along with bragging rights. They've already made their pile regardless of how the company or its stock performs post-IPO.

                  It's the very definition of a rigged game with a guaranteed outcome (I say that in a admiring manner, not implying that anything being done is illegal). The only other options for early/mid-stage investors to recoup their money is an acquisition or private equity buyout. Both are great outcomes, but rarely anything close to the dollars that come with the IPO.

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                  • #10




                    Back in the day, going public was legitimately about raising additional capital for expansion. You’ve probably noticed most recent IPOs (particularly tech companies) have no shortage of cash on hand when filing the paperwork. Nowadays, IPOs are primarily for rewarding mid/late stage investors along with bragging rights. They’ve already made their pile regardless of how the company or its stock performs post-IPO.

                    It’s the very definition of a rigged game with a guaranteed outcome (I say that in a admiring manner, not implying that anything being done is illegal). The only other options for early/mid-stage investors to recoup their money is an acquisition or private equity buyout. Both are great outcomes, but rarely anything close to the dollars that come with the IPO.
                    Click to expand...


                    Yes, IPOs are sometimes even part of the deal when taking VC capital, thats part of their game. Seed the start up and cash out at IPO (at least partially or to there predetermined level).

                    The point of the article was that if these companies dont IPO until their monsters, we are not partaking in their growth and possibly missing something. We'll see, many of the famous ones arent great companies right now so we'll have to see whether it pans out or is a blessing in disguise.

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