U.S. Corporations Are an Endangered Species
Kids these days talk about “memes.” That’s what they call a topic that they all know about. It helps with conversation, apparently.
Back in the ‘70s and ‘80s, TV commercials were our memes.
I’m sure you remember plenty. “Where the beef?” (Wendy’s). “He likes it! Hey, Mikey!” (Life cereal.) “The Uncola Nut” (7-Up).
One commercial that stuck with me was for a brokerage called E.F. Hutton.
It had a guy in a crowded place saying: “My brokerage is E.F. Hutton … ” and everyone stops to catch the latest hot stock tip. Hence — “When E.F. Hutton talks, people listen.”
Who stops conversation in the stock market world these days? Who do folks treat like … well, an oracle?
How about Warren E. Buffett, chairman and CEO of Berkshire Hathaway?
The Oracle of Omaha said something the other day that stopped me in my tracks…
Penny-Wise, Pound Foolish
Like the beef in 1970s hamburgers, listed corporations are becoming harder to find in the U.S. That makes it harder to find promising investment opportunities without expert help.
Warren Buffett and Jamie Dimon, CEO of JPMorgan Chase & Co., think they know why. I agree with them. Here’s what they had to say in a recent Wall Street Journal opinion piece:
The pressure to meet short-term earnings estimates has contributed to the decline in the number of public companies in America over the past two decades. Short-term-oriented capital markets have discouraged companies with a longer-term view from going public at all, depriving the economy of innovation and opportunity. Fewer public companies has also meant fewer opportunities for retail investors to create wealth through their 401(k)s and individual retirement accounts.
You know those quarterly earnings estimates we all wait for like Christmas?
They’re killing the U.S. economy. If companies must generate stellar earnings every three months, nobody can invest for the long term — unless they remain unlisted and out of our reach.
For example, the other day I came across a U.S. company that has invented something so revolutionary, it could transform the entire global economy. It could increase energy efficiency and reduce carbon emissions with a small but critical tweak.
But it’s unlisted, because investors’ short-term earnings requirements would have stopped it in its tracks.
It’s an example of how the U.S. obsession with short-term earnings makes the entire economy “penny-wise, pound foolish” … and deprives us ordinary folk of investment opportunities.
“Where’s the Corporation?”
The U.S. corporation is an endangered species.
In 1975, 48.5% of corporate profits came from the 100 most profitable listed firms. By 1995, that percentage had inched up to 52.8%.
In the last 20 years, however, this proportion mushroomed to 84.2%. The reason? Smaller companies can’t survive anymore.
The Wilshire 5000 Index includes the market value of all stocks actively traded in the United States. Back in 1974, when it was created, there were about 5,000 such stocks.
Now there are just 3,599.
This year, the 100 most profitable U.S. firms accounted for $1.46 trillion of total after-tax first-quarter corporate profits of $1.74 trillion. That means the remaining 3,499 companies shared just $274 billion in profit.
100 companies making an average of $17.4 billion profit. 3,499 struggling for $78 million each. It’s no wonder the number of U.S. corporations has plummeted:
Fighting Over Scraps
As Buffett and Dimon note, fewer corporations mean fewer opportunities for profitable investment for everyone except deep-pocketed venture capitalists. It’s another reason why income and wealth has become so unequal in the U.S.
But those opportunities are still there. You just have to know where to look.
You don’t have to spend all your time ferreting out winners amongst the 3,499 companies scrapping over the leftovers of the U.S. economy. You can rely on us.
It’s why Paul Mampilly, Jeff Yastine, Matt Badiali and I write newsletters. We do the legwork for you in your search for wealth.
And The Bauman Letter helps you to hang onto it once you’ve got it.
You could get lucky and find investments that regularly produce triple-digit gains. Or you could get smart and have us do it for you.
Because the fewer opportunities there are, the more valuable expert advice becomes.
Editor, The Bauman Letter
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