Interesting, but in some ways not too surprising

[unixronin]

I've been saying for years that Wall Street is becoming increasingly detached from reality, that it is becoming a force destructive of industry and investment rather than a force for facilitating them, and that if I ran a company I would keep it private at all costs and never, ever surrender it to the whims of the Wall Street speculators if I could find any alternative (in fact, in those circumstances I'd think very seriously about cashing out and going off to do something else).

It appears I'm not alone in this opinion.

Put another way, as the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.

What the market is not doing so well is its core public function: allocating capital efficiently.  Apple, for instance, is hugely profitable and sits on an enormous pile of cash; it is thus very unlikely to use its highly rated stock to pay for any acquisitions.  It hasn’t used the stock market to raise money since 1981, and there’s a good bet it never will again.

Meanwhile, the companies in which people most want to invest, technology stars like Facebook and Twitter, are managing to avoid the public markets entirely by raising hundreds of millions or even billions of dollars privately. You and I can’t buy into these companies; only very select institutions and well-connected individuals can. And companies prefer it that way.

A private company’s stock isn’t affected by the unpredictable waves of the stock market as a whole.  Its chief executive can concentrate on running the company rather than answering endless questions from investors, analysts and the press.

Comments

[ithildae]

In many cases, company cash reserves are out of the country, and will not be repatriated for trade or cash payouts due to an insane USA business tax policy.

With normal investors (defined as someone that wants to make money long term from a company) having fled the market, stock valuations are based solely on short term investors either trying to time the market, or attempting to manipulate the stock. Hedge funds are a prime example. You see many takeover strategies aimed at draining a company's cash reserve. (Witness the buyout of Novell for, effectively, zero dollars, when you take into account cash on hand and sale of patents.) Several companies are in that situation.

It is simply insane for a private investor to be in the stock market right now. Your nice, safe 401k's are subject to the whims of the hedge funds and day traders. You are a sheep among wolves.