Where Have All the Public Companies Gone?
I recently revisited this piece that I wrote back in 2017. It is interesting to note that since the time I originally wrote it, the number of IPO’s - particularly tech-related - has increased. However, these IPO’s are still just a drop in the bucket. The trend toward private markets over public markets continues. It is why I spend most of my time and efforts in the private equity and venture space.
The original piece that I was discussing was an article in the Wall Street Journal from Jason Thomas of the Carlyle Group titled “Where Have All the Public Companies Gone?” I think that this is an important article for investors to understand. It highlights the fact that the very nature of the stock market has changed dramatically in the last 20 years, which has implications for your portfolio.
This is important for you as an investor. I have been talking about this for a long time, and getting a lot of blank stares and disbelief when I bring up the topic. I don’t think most investors are aware of it. Certainly, I don’t believe investors understand the implications. The move away from company IPO’s may not be a fad – it seems more likely a generational structural change is taking place in the investing world.
Where Have All the Public Companies Gone?
I found these three direct quotes from the article particularly interesting (the full article is included below):
“The number of public companies in the U.S. has been on a steady decline since peaking in the late 1990s. In 1996 there were 7,322 domestic companies listed on U.S. stock exchanges. Today there are only 3,671. Investors can feel the difference. The stock market today isn’t the stock market of 20 years ago. Investors, take heed.”
“The trend away from IPOs has benefited private market players at the expense of everyday investors. With companies like Uber, Airbnb and other successful startups delaying their IPOs for so long, there is little prospect for public returns on a scale similar to those enjoyed by Amazon’s early stockholders.”
“As a large number of yesterday’s “growth stocks” have migrated to private portfolios, so too has the diversifying economic exposure they provide. Today, it isn’t possible to assemble a portfolio with the same makeup as the stock market of 1997 without exposure to private markets.”
My guess is that your advisor is not discussing this with you. How do I know? Because investors are telling me that their advisor is not talking about it.
Implications – Why We Should Care as Investors
Most investors are primarily invested in stocks and ETF’s. In the past, this has been an acceptable solution. However, that strategy is most likely no longer enough.
If your portfolio is primarily invested in stocks and ETF’s – you are probably not as diversified as you think. As public stocks have disappeared, the investment universe of growth opportunities to choose from has gotten smaller and smaller.
Investors today are probably not accessing as many private market growth opportunities as they should be. The private markets are where I continue to see significant growth opportunity, even in this richly-valued market.
Solutions – What We Can Do as Investors
Your portfolio is your safety net. Diversification is still a powerful solution. However, as an investor in this environment, you need to work harder to maintain a diverse portfolio of investments.
As an investor, it is up to you to work to access growth opportunities in the private markets. Growth companies can give investors the opportunity to grow beyond a high valuation at purchase. This is difficult to do with later-stage, public companies.
Yes, the market as a whole is richly-valued. Almost a decade of easy money from the Fed has pushed valuations up across the board. However, there are pockets of opportunity out there, you just have to look harder. Most wealth managers do not have the expertise to access these opportunities in the private markets.
(C) Marc Patterson 2020, All Rights Reserved
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