is shrinking.

I'm going to explain what's going on

and why it might spell trouble.

00:00:17,450 --> 00:00:20,230 So this line shows the number of publicly listed companies

in the United States.

The data comes from the World Bank.

It goes all the way back to 1980 now.

As you can see, in 1996 this number peaked around 8,000,

but since then has fallen to around 4,400.

So that's a decline of about 45 per cent in just over 20 years.

00:00:40,860 --> 00:00:42,280 So what's happening here?

Well, one thing has to do with private equity.

Now, investors are putting a lot of money into private equity

firms lately.

And that's because they think that it

will get them more returns than other markets will.

Private equity firms, they take that money and they

turn around and buy companies.

So this happened recently with Barnes & Noble, the bookseller,

which was a public company.

But it was bought by a firm called Elliott Management.

Now, Elliott is actually a hedge fund.

But the fact that it's playing around in the private equity

space should tell you how much money is going into that space

right now.

Now, a second thing that's happening

is that companies that could newly list themselves in IPOs

don't necessarily have as much incentive to do that, firstly,

because they can still raise that money,

like I said, in private markets.

Maybe it's a late stage venture capital round, or again,

private equity.

But also, they don't really have incentive,

because they are under a lot more scrutiny when

they're public companies.

And as a public company, you have

to disclose more information.

So if they can avoid the hassle and still get the money,

why list themselves?

A third reason has to do with mergers and acquisitions, which

have been quite high lately.

And that's pretty self-explanatory.

When one company acquires another,

two companies have become one.

And therefore, you have fewer public companies.

Now why is this a problem?

Well, I like to think of the stock market

like a pond and the companies that are listed like fish.

And the money going into the stock market

is like food to feed the fish.

But then one day, let's say you take half the fish out

of the pond.

00:02:20,930 --> 00:02:23,390 If the same amount of food is going into the pond,

then these fish are going to eat it,

and they're going to get a really big, because there's

less competition.

So this is the same thing that potentially

is going on with the stock market, which is

that you have fewer companies.

They have less competition.

There's less companies available for the public

to put their money into.

So the prices of those companies tend

to potentially become inflated.

Now, this is causing a little bit of concern.

Even regulators have talked about it a bit.

But frankly, the trend isn't going to reverse itself

until the public markets become a popular pond for companies

to swim in again.

And until then, they may just get bigger and bigger

until they finally pop.