While the U.S. is rapidly becoming a friendly place for big players in the investment world, the average American is finding the best investment opportunities are out of reach.
Interest rates are hovering near record lows, and large investment firms are scrambling to find higher rates of return. The result? Big firms are throwing cash by the bucket-load at private companies, hoping to gobble up as much equity as possible. Adding yet another wrinkle to the drastically changing market landscape is the near record number of firms exiting the stock market through various mergers and acquisitions over the past few years, which reduces opportunities for big players, but limits the small, private investor even more considerably.
After the Great Recession, the stock market became increasingly bifurcated, which means that there were two separate options available to investors: a private option for the big investment firms and a secondary public option for the average private investor. Large firms typically use the secondary market as a last-ditch resort, and the family man looking to get a respectable return while avoiding excessive risk is left to pick up the proverbial scraps.
When Alibaba made its initial public offering, for example, small private investors were sidelined by private firms bulk-buying its IPO and causing the average share price to skyrocket just hours after the offering.
Bifurcating is an increasingly common trend, since companies are taking longer to go public. While various laws provide loopholes that theoretically allow some private investors to enter into partnerships, granting them access to private market offerings, the little guy is still largely left out.
The number of U.S.-listed companies has declined by 3,000 since 1997, the Journal reports. While there are far fewer companies listed, the valuation of the companies remaining is now widely inflated. Silicon Valley now looks to the private market for fundraising; 26 technology IPOs raised approximately $4.3 billion on the private market last year alone.
Over 100 companies went public in 2016, and they did not fare well compared to previous years. The 111 firms making IPOs raised just $24.2 billion, a 33 percent dollar-volume drop from 2015, and the lowest figure since 2003, the Journal reports.
And unlike other comparable expansions, while each major index is performing at historic levels, most Americans are not able to benefit. The Dow Jones Industrial Average, the benchmark stock index, rose 1,000 points just one week after President-elect Donald Trump won the White House. The benchmark index is up 14 percent on the year and the S&P 500 is up 11 percent. The S&P 500 had its biggest one-month rally in its 93 years of existence. The index rose nearly 5 percent from Election Day, Nov. 8, to Friday, Dec. 23. It broke the previous 30-day record set following Richard Nixon’s election. (30-Day Market Snapshot After Trump’s Election)
If private companies decide to go public, experts are warning that the average investor may miss out on the rapid growth experienced like Amazon or Google.
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