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Michael List

June 26 , 2017

One big game of Monopoly


I always enjoyed playing Monopoly growing up.  It was fun buying and trading properties, building hotels, collecting rent and building an empire.  As a parent I prefer Monopoly Junior - games end so much faster. 

Recent research from The Wall Street Journal and Credit Suisse outlined the evolution of the U.S. stock market over the last 40 years.  One interesting change has been the quantity of stocks in the stock market.  The number of publically traded companies has been declining for two decades after 20 years of rapid growth building up to the dot-com bubble (as seen from the chart below).  Near the peak in the late 90’s there were more than 7,000 publically traded stocks and more than 4,000 of those were tiny micro-cap stocks.  Today, there are fewer than 4,000 stocks listed on the whole U.S. stock market. 


Credit Suisse attributes this evolution to three factors: mergers & acquisitions, rising regulations, and larger role of private equity.  While, M&A activity has been relatively stable over the last 40 years, regulations and raising capital have gone through some changes.  During the last 20 years, regulations have increased the cost of listing stock.  Simultaneously (and completely unrelated, I’m sure) private companies can now obtain later-stage funding from hedge funds or private equity firms , both of which limit the number of new offerings to the public.  Amazon.com and Facebook offer a perfect example of this shift.  Amazon was founded in 1994 and went public three years later, raising $626 million.  Facebook was founded in 2004 and didn’t go public for eight years, raising $110,151 million.  

As a result of this evolution, the companies we have today are bigger, older and generally more profitable.  The average age of a listed company today is 18.4 years versus 10.9 years in 1976.  The size of the average stock has risen from $620 million (adjusted for inflation) to nearly $7 billion.  In the end, there can be only one Monopoly champion and right now it looks like it is a close race between Google, Amazon, Apple, and Buffett. 

With fewer stocks it is more difficult to get true diversification. We can help you look at your mutual funds and look for overlap, contact Security National Bank Wealth Management below. 

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