In a strange and subtle way – we have slowly but surely, had fewer public stocks available.
A preview of our coming Newsletter Article …
Where did all the stocks go?
Economics 101 says if we have the same demand and less supply, price will rise-
We were surprised to find out the total US stock headcount is down by almost 50% over the last two decades….
Key findings and reasons-
- According to many, the costs have risen dramatically to nearly mid-teens percentage of total public offering
- Continued initial public offering “Pops” – think SNAP – only to fizzle much below initial offering price
- Increase demands from governance once public
- Mergers – big public companies getting bigger through acquisition
- Public company Buybacks – While an entire article could be written on this subject, in brief buybacks lower the total shares outstanding of a company are an appealing use of extra capital as a buyback increases reported earnings all other items considered AND are more flexible than a dividend. Lowering the dividend is very politically incorrect as it may lead investors to believe there is company weakness, with little to no similar mandates on buybacks.
- Less flexibility being a public company – this especially true from home grown or family run companies
- Adequate access to capital – in recent years capital from various sources such as debt offerings or venture investors has made it less necessary to go public, once a mandate for liquidity
So if there are less supply and at least similar demand — valuations may be increased!
Look for complete analysis in our Q 3 Newsletter.
Have a Great “Less Supply- Higher Price” Day!
John A. Kvale CFA, CFP