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Continued Trend To Fewer Stocks Available To The Public

May 09, 2024

Over the decades we’ve written about the number of stocks available to buy on the market declined. The last time was our Second Quarter, 2017 newsletter. At that time, according to the Research in Security Prices, University of Chicago Booth School of Business there were:

1997    7,355 stocks
2017    3,600 stocks

Fast forward to current times – an update to the study reflects current stocks available at 3,700. While the number is slightly higher than 2017, not by much.

Why?

Some firms are staying private for longer. The capital for company growth is largely coming from Private Equity (PE) companies.

There is also another side to Private Equity firms. Many buyout other companies using debt (used to be called leveraged buyout or LBO). The company is taken off the stock market exchange. The PE firm comes in, maybe installs new management, reduce costs, moves profits to the PE firm and then tries to sell what is left of the original company to the public. The PE firms takes fees for the activities during each step. Sometimes it backfires. One of the most recent examples – Toys “R” Us bankruptcy filing.

According to Cleary Gottlieb writing about Private Equity, “buyout funds globally owned approximately 26,000 companies at the end of 2022.”

These buyout/PE companies are rather hidden from view. According to federal prosecutor Brendan Ballou, PE firms are buying “everything from vet offices to tech conglomerates.” He says the system is broken and the PE firms are not held accountable. He is the author of Plunder: Private Equity’s Plan to Pillage America.”

Did you know that Private Equity firms Carlyle, KKR and Blackstone are the largest employers behind Walmart and Amazon?

According to Georgia State News Hub, 19,000 (nearly 11%) of home rentals in Atlanta are owned by three Private Equity companies. Taylor Shelton, an assistant professor in the Department of Geosciences at Georgia State University points out there is a crisis of affordable housing in Metro Atlanta. Based on a study by GSU researcher Dan Immergluck, corporate landlords are one of the reasons prices are kept high. And, because limited liability companies (LLC) are used, it is hard to trace back the identity of the landlords.

The study indicated this is going on in many metro areas around the country. In Metro Atlanta alone, he found 190 LLCs owned by the three PE companies.

We didn’t mean for this to become an article about some of the problems with private equity firms. Perhaps we need one solely on this topic. However, none of the businesses run by PE firms are available on the stock exchange for the public to buy shares.

It seems we have more buyers whether in 401(k) plans, individual investors or institutional investors bidding on fewer stocks. The economic maxim: More demand, less supply points to increased prices.

Footnote: In the Wall Street Journal, April 19, 2024, there is an article titled, “States aim to Combat Healthcare Takeovers.” Red and blue states are passing legislation to require filing of any Private Equity healthcare acquisition to be reviewed by the state. The goal: the best interest of the public.

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