Tags: stock | market | IPO | fund

Will the Stock Market Just Disappear?

By    |   Wednesday, 27 August 2014 07:53 AM

Investors obsess over the stock market. Will it go up or down? When is the next crash coming?

I have a different angle. Instead of the stock market's direction, we should wonder about its continued existence.

Ten years from now, we may not have a stock market at all — at least not one that resembles today's NYSE or Nasdaq.

The world can change far faster than most people realize. Only eight years ago, no one had a smartphone. You could not access the Internet from wireless mobile devices. Now we can't escape them. The financial system could change just as fast.

What would cause such a change? The answer is simple economics. Stock exchanges exist to provide a secondary market for equity shares issued by public companies. The primary market for those shares is the initial public offering (IPO).

Until quite recently, companies used IPO proceeds for expansion capital. This is quickly changing.

Mark Zuckerberg had plenty of cash when he took Facebook (FB) public. He didn't need public investors. The Facebook IPO's purpose was not to help the company expand, but to give early investors a chance to cash out.

The capital-raising function once served by the IPO process works differently now. Wall Street investment banks used to earn their exorbitant pay by matching capital-starved businesses with wealthy investors.

Such matchmakers aren't necessary now that everyone is connected to everyone else.

A large and growing number of big technology deals occur completely outside Wall Street's orbit. For companies whose executives already know each other, striking their own deals is quicker and easier.

We saw an early version of this in 2011 when Microsoft (MSFT) bought privately held Skype for $8.5 billion, with no help from Wall Street advisers. This year we've seen Apple (AAPL) buy Beats Electronics for $3 billion, Oracle (ORCL) buy Micros Systems for $5.3 billion and Facebook buy Oculus VR for $2.3 billion.

In all these cases, the buyers and sellers made their own deals. Skype, Beats, Micros and Oculus never had an IPO. The public never had a chance to own their shares — and Wall Street had no chance to milk fees from them.

If you're wondering why bank stocks are lagging other sectors lately, this is one reason.

I don't mean the stock market will cease to exist, but it will definitely change. We are moving into a world in which growth companies raise capital through venture capitalists, angel investors, private networks and online crowdfunding sites. The stock market will be a much smaller part of the broader capital markets.

How (or if) individual investors will be able to participate in the new market structure isn't entirely clear yet. I think we can safely conclude that the stock market's next decade will look nothing like the last one, not just directionally but existentially as well.

Never assume the future will be like the past . . . because it won't be.

© 2019 Newsmax Finance. All rights reserved.

1Like our page
Investors obsess over the stock market. Will it go up or down? When is the next crash coming?
stock, market, IPO, fund
Wednesday, 27 August 2014 07:53 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
© Newsmax Media, Inc.
All Rights Reserved