The Shrinking Stock Market

Every investor should read this interview. It’s with Marc Andreeson, a well-known private equity or venture capital investor, especially in technology. The interview largely is devoted to explaining why fewer companies are listing their stock on public stock exchanges (going public) and why they are doing so later in their growth cycles than before. It’s largely a story of government regulations and restrictions and it’s inability to control those who float rumors in order to damage a stock’s price. The result is that there are fewer opportunities for the public to capture growth. Much of the growth in the economy is being captured by private investors. The government allows only the wealthy and institutions to invest in such companies, so by definition the government is ensuring the wealthy get wealthier while others have fewer opportunities to do so.

The result of all that is the effective death of the IPO. The number of public companies in the US has dropped dramatically. And then correspondingly, growth companies go public much later. Microsoft went out at under $1 billion, Facebook went out at $80 billion. Gains from the growth accrue to the private investor, not the public investor.

Most American retirement savings is invested in the public stock market. Most Americans can’t invest in private companies and most Americans can’t invest in venture capital and private equity funds. They’re actually prohibited from doing so by the SEC. If you both prohibit them from investing in private growth and wire the market so they can’t get into public growth, then you can’t be invested in growth. That raises the societal question of how are we going to pay for retirements. That’s the question that needs to be asked that nobody asks because it’s too scary.