It’s been a stressful few weeks for stock market investors.
Many folks – from Main Street to Wall Street – are heading for the hills:
Individuals are swapping shares for cash or gold.
And plenty of “pros” are making a run for Treasuries.
Sure, you might sleep better if you’re not holding stocks – but staying on the sidelines won’t help grow your nest egg.
Where can you look for growth?
Follow His Lead
We believe that one of the best places to grow your wealth is in the private market.
And just two weeks ago, we learned that one of the world’s most influential public market investors shares our belief.
Today, we’ll tell you about this former public investor…
And show you why you might want to follow his lead.
There’s a major trend occurring right now:
The stock market’s capacity to generate wealth is weakening.
We call it The End of the Stock Market.
Here’s what’s happening…
Fueled by capital from big investors, start-ups are staying private longer.
By the time these start-ups go public, there’s little money left to be made by stock market investors.
In the “old days” (10 or 15 years ago), a company would crash through the IPO gates as soon as it could.
It was rare to see a private start-up with a valuation in excess of $1 billion…
In fact, in the year 2000, there were just 10 such companies.
Fast-forward to today, there are 49 of them.
That’s the highest number of billion-dollar start-ups in history.
What’s this mean?
It means more of a start-up’s increase in value is occurring prior to going public.
And all that value is being captured by private-market investors…
Not by folks who get in after the IPO.
What’s Fueling This Trend?
Historically, to get access to growth capital, a company would need to go public.
But nowadays, start-ups can raise as much as they need from the private market.
Look at Tiger Global, one of the most prominent hedge funds in the world:
Until recently, they were best known for their public-market investing.
In the past 5 months alone, however, they’ve raised two separate $1.5 billion funds to back private companies such as home furnishing site One Kings Lane, eyeglass company Warby Parker, and real estate site Redfin.
But what about a company’s founders and early investors? How are they supposed to get “liquid” (i.e., see a return) while waiting for an IPO?
A die-hard public market investor might have the solution.
And it might bring about the “End of the Stock Market” sooner than we thought.
From Public to Private
For three decades, Duncan Niederauer was the embodiment of the public markets.
He spent 22 years at Goldman Sachs where he ran a key stock-trading division.
Eventually he became a Partner.
For most folks toiling in the public markets, becoming a Partner at Goldman would be the pinnacle of a career. Not for Niederauer.
In 2007, he left to become CEO of the New York Stock Exchange – the largest public equity exchange in the world.
But two weeks ago, in a traitorous twist, he walked away from the NYSE.
In fact, he left the public markets entirely.
Enter Battery East
Duncan became an executive at Battery East, an upstart brokerage firm.
Battery’s focus is on the private markets.
Battery helps employees of start-up companies sell their shares – before the company goes public.
These types of sales are known as “Secondary Sales.”
Secondary sales help founders, employees and even early investors of start-ups “get liquid” – in other words, turn their private stock into cash.
What Success Would Look Like
If Battery is successful, the company can help early employees and investors see a return on their shares before a formal “exit.”
In fact, with deep-pocketed investors willing to fund private companies, and a liquid secondary markets for shares, there’s little incentive for a company to IPO.
As Scott Kupor, managing partner at venture firm Andreessen Horowitz said:
“The loser in this case is the individual retail investor. More and more of the appreciations of these companies will happen in private markets. If you… can get access [to these deals] you’ll get the lion’s share of the growth.”
Is This Really The End?
We agree with Scott’s sentiment about growth occurring in the private markets…
But there’s no reason for individual investors to lose out.
Thanks to the JOBS Act, all investors, regardless of their income or net worth, will be able to invest in high-potential companies when still they’re private…
And capture the upside potential as they grow.
So while we don’t believe this is really the end of the stock market, we do believe that investors will need to look to the private market for big gains.