By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS
Q: Why are there so few IPOs these days?
A: PRIMARILY BECAUSE OF GOVERNMENT REGULATIONS.
U.S. corporate stocks as investment options have been on a steady decline. The Wall Street Journal reported that “There are 3,671 domestic listings today, down from 7,322 in 1996. Investors can feel the difference.”1 We now have only half as many public stocks to choose from in the U.S.
Many large companies make large campaign contributions. It is not surprising that we see legislation which insulates them from competition. Laws such as Sarbanes-Oxley and Dodd-Frank were labeled as protection for the consumer.2 Yet these behemoths of new regulation effectively act as legislated barriers on new competition. Startups typically cannot afford the incredible administrative expense of complying with these intentionally onerous roadblocks – none of which have anything to do with creating the product or service that otherwise would be available to American consumers and investors.
In 1996, there were 845 IPOs, but in 2016 there were only 128.3 The downward trend is obvious and ominous. Additionally, many formerly public companies have decided that given the current circumstances, delisting as a publicly traded stock makes good business sense. Here are just a few of those familiar delisted companies: Dell Computers, Burger King, Heinz, Panera Bread, Hilton, and Reader’s Digest, etc. Who is winning here? If there are fewer investment choices, the remaining companies get a larger piece of the stock market pie. That is good for them but not so good for investors, or our country.
Increasingly, many publicly traded stocks are located outside of the U.S.3 – and so are a large portion of the world’s stock market profits. Portfolios need to be monitored to keep up with the changing investment environment. As always, a conversation with your trusted advisor about the risks and upside of any investment option is prudent.
1 Wall Street Journal “Where Have All The Public Companies Gone?” Jason M Thomas November 17, 2017
2 Barron’s “Market View” Jack Albin August 13, 2018
3 Barron’s “In Defense of Public Markets” Alex Eule August 13, 2018
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All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability, and accuracy of this information. Any action you take upon the information is strictly at your own risk.