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The Bad Side of a Good Idea

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The Bad Side of a Good Idea

Why fewer companies are going public, why it’s a problem, and what we can do about it.

Collaborative Fund,

5 min read
5 take-aways
Audio & text

What's inside?

The initial public offering is no longer the only option to finance business growth.

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Editorial Rating

8

Qualities

  • Innovative
  • Well Structured

Recommendation

For more and more companies, the road to future expansion does not include an initial public offering. According to this insightful article from journalist and private equity investor Morgan Housel, the short-term pressures of reporting to shareholders are driving CEOs to seek financing alternatives. And as the number of publicly traded stocks shrinks, investors must look to getting greater returns from fewer companies. getAbstract recommends this thought-provoking report to investors and to executives considering initial public offerings or private equity funding.

Summary

The 1996–2016 period saw a steep drop-off in the number of US publicly traded companies, from 7,322 to about 3,700. Thus, investors must rely on fewer public companies to produce market returns. A brief look at the history of investing helps explain why a shrinking stock market is troubling. Share ownership was outside the mainstream in the United States until late in the 20th century. The 1970s brought workplace savings plans into being, which fully took hold in the 1990s. In 2015, some 55% of US households owned publicly traded stocks.

Starting after 1990, dizzying growth in the...

About the Author

Morgan Housel is a financial journalist, a private equity investor and a partner at the Collaborative Fund, a leading capital source for entrepreneurs.

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