Skip to comments.The Incredible Shrinking Stock Market
Posted on 03/08/2014 8:42:08 AM PST by Kaslin
"The number of publicly traded U.S. stocks available to investors is plumbing new lows, even as their prices brave new highs." -- Barron's (February 24, 2014)
The Wilshire 5000 Stock Index is supposed to be the ultimate measure of the U.S. stock market, but in reality there are now only 3,666 stocks in the index. Back in 1998, it contained 7,562 stocks. The employment participation rate isn't the only number in decline.
There are a lot of reasons for this decline. The number was artificially high during the dot-com boom of the late 1990s. Since then, the dot-com boom collapsed and mergers/bankruptcies/delistings have exacted a toll. Foreign exchanges have drawn away a few U.S. listings. Companies are buying back their shares in record numbers.
But the main culprit has to be excessive and unnecessary government regulation, like Sarbanes-Oxley and Dodd-Frank.
The enactment of the Sarbanes-Oxley Act in 2002 and Dodd-Frank in 2009 imposed expensive burdens on public companies and made it almost prohibitively expensive to go public. The initial public offering (IPO) market has gone from robust to anemic, despite a recent increase. Many IPOs are done across the border in Canada or overseas. Many publicly traded companies have decided to call it quits and go private, avoiding the excesses of "Sarbox." Most recent examples include Dell, H. J. Heinz, Mervyn's, Levi Strauss and Jo-Ann Fabric and Craft Stores.
The Fed is also responsible. By keeping interest rates near zero, zealous private equity players are making it easy for companies to raise money without going through public compliance.
The Terrible Snow Storm that Never Was
There are old sayings that apply to last weekend:
Climate is what you expect, weather is what you get." and "You can predict the climate, but not the weather."
Last weekend, the National Weather Service and the media predicted a huge storm that had a "100%" chance of dumping rain and then up to a foot of snow in the New York City area.
I was scheduled to speak before the New Jersey chapter of the American Association of Individual Investors (AAII) on Monday, the day the "guaranteed" snow storm was to arrive. So the host canceled the meeting.
Guess what? Not only was there no snow, but no rain either. It was just another cloudy and cold day in New York. It turned out that the storm hit the Washington D.C.-Philadelphia area but never made it to New York.
Two lessons come from this story: Meteorology is still a very imprecise science. And you shouldn't change plans for sure until you know for sure what is going to happen.
Economists predicting the future of the economy should also be aware that they are even more imprecise and uncertain of the future than weathermen.
That is the bet, the compounding interest of the stocks I own beats the stocks I own of the companies that Democrats put out of business.
Plus, when the Fed intent is inflation, it is obvious to own an investment that has potential to beat inflation.
Isn't something that is considered to be "imprecise" not really a Science?
Very interesting observation.
Imprecise and uncertainty for the last five years only three more to go.
Someone said S&P stocks did 30 percent gain in the past 12 months.
No. Science starts with a hypothesis in pursuit of resolving implicit ignorance. One cannot expect precise results about something of which one is ignorant, although one can certainly attempt precise measurement.
Think for a moment about all the accidental discoveries in history. Even then, when the unexpected arises out of an experiment precision, measuring the result can be difficult because it was outside the range of what was expected, necessitating different measuring tools. That is but one reason why experiments are repeated.
I don’t think the high-tech and dot.com stock market bubbles - and the additional stocks that (temporarily) got listed at that time - is a good measure to judge what the stock market’s should be.
To maintain honesty, then, the index should be calculated with the missing 1,334 stock prices set at zero. :)
The stock market can be fixed. Look at Twitter & Facebook. They have no profits, hardly the revenue to justify the 10’s of billions in stock price value.
I believe they make their profit through ads
Good advice, but could you give some examples?
Fewer stocks allow a smaller amount of money to push them higher.
No examples as I only have a very diverse retirement account in several different family of funds.
One thing I would steer clear of is index funds, as they are at their record levels and over sold/bought-IMHO. It is better to pay a bit more for an actively managed fund so if there is a losing stock it can be sold off separately.
Sorry it took so long to get back to you, I am slow here as I prepare for the worst, assuming it’s about 6 to 12 weeks(?), as we know, as long as Democrats are in charge, stupid rules the day.
No problem, but thanks for getting back to me.
Right now most of us are so tied up working to get Maine out of the union we simply don't have time to do the research necessary for our own portfolios.
But this I know, if we are unsuccessful in our effort to secede, stocks and bonds are going to be the least of our worries.
I have to keep focused on the last verses of James chapter four, for if God wills it we shall succeed, but if it is not His will that we be free, nothing we do can but fail.
Thanks again for saving me some time.
Just one more point on index funds being over-sold, seems all the economic commentators on public radio and fox news were highly endorsing the buy and hold of index funds, with the Foxnews commentators just this morning high on Vanguards index fund, which, although it may be just fine for an investment, it is an example of overselling the public on index funds, IMHO.
My economic education was reading The Power of Money Dynamics;
back around 1995 when I realized life beyond 30 yrs old.
A favorite of mine, Genesis 4:7; If thou doest well, shalt thou not be accepted? And if thou doest not well, sin lieth at the door. And unto thee shall be his desire, and thou shalt rule over him.
One of the hardest things a Christian has to do is rule over his or her sin nature. God bless