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The Universe Of Public Firms Is Changing: Investing Implications

|Includes: AAPL, GOOG, SPY, Walmart Inc. (WMT)

I just wrote a piece at Portfolioist that discusses research into how the universe of public companies has changed in recent decades. There are big changes, not least of which that there are 44% fewer public firms than there were just 15 years ago. The number of companies is not, in itself, important.

The nature of public firms has changed dramatically and I have written about a number of these trends. First, we have seen a major shift in the ways that major American firms operate and this has implications for investors. First, the manufacturing base has become a small element of our economy. Firms such as WalMart now represent the largest generators of jobs and of course these jobs pay far less than manufacturing jobs. Second, U.S. domiciled firms that generate big earnings, like Apple and Google, employ a very small number of U.S. workers than companies of their size have in the past (see my piece for details---its impressive).

We also know that there has been a major shift in executive compensation towards option-based compensation and this, in turn, impacts how companies operate. This, in turn, has impacted dividend policy. If you get paid in stock options, you would rather not pay dividends because dividends reduce the value of options.

Ultimately, what all of this means for investors is fascinating. Is it meaningful to use stock market performance data from fifty or more years ago when the nature of the market has changed? How might this change the way that people invest? When big U.S. firms are not generating a lot of high-paying jobs, the benefit and contribution to growth in the broader economy is obviously lower, for example.