The Coming Golden Era For Investors

by: Dana Blankenhorn

The last several years have been marked by a preference for big private investors over small retail investors.

Big private equity funds can move in ways public companies can't. They can get together in a computer algorithm and slurp up profits from pricing action before small investors see it on their screens. They can run the casino, manipulate it to their hearts content.

This is how the 1% of the 1% has been able to expand its lead over the 99% of the 1%, and how the 1% of that has been able to expand its lead over the 99% of that 1%. The rich may be getting richer, but the ultra-rich are getting richest fastest. And the ultra-ultra rich faster still.

We've seen what that gets you. A discontented rabble instead of a thrifty working class.

So what we're going to see over the next few years are serious efforts to rein in the casino economy. Big investors will moan that government is trying to control private enterprise, that it's hurting growth, that it's socialist or communist, Keynesian or fascist; and that those in business who support such moves are traitors to their class.

Maybe so. But maybe, if the big boys really are reined in, companies seeking capital will come back to you, the small investor. Maybe, if the casino isn't rigged, more small investors will come back to the market.

What would such an era look like?

  • Stock Splits – Apple (AAPL) and other big techs let their stock prices run up into the hundreds of dollars, and Berkshire-Hathaway (BRK.A) lets its run into the hundreds of thousands, leaving small investors to think they're too high to hold. If Apple wanted your money they could easily split 10-1. Same with Google (GOOG) , same with Amazon (AMZN). When they want you, they will.

  • IPOs – Today's IPOs are no longer companies seeking capital. They're big private capital looking for the exit. The juice was squeezed out of Groupon (GRPN) long before you got a taste, and it will be all gone from Facebook before you get there either. If they want you, in other words, they will let you in when there is money to be made from it.

  • Transparency – The paperwork hassle from being public should be little different from that of being big. That's one of the big reforms I see coming. And if there is no difference between public and big, why not let the public in?

Some things will be different. I remember taking many free lunches at my first job, with the Houston Business Journal, as CEOs did “dog and pony” shows for brokers, who would then push their stocks on clients. That's all going online. Those kinds of marketing costs have been squeezed out and will stay squeezed.

Switching the big returns in stocks from the big boys to small investors may mainly benefit the 10%, as opposed to the 90%, at first. But it will put a political lift under Wall Street and business' political interests; a lift that it really needs right now. And it will broaden.

Disclosure: I am long GOOG.