What Causes a Reduction in Canadian Public Companies?

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Mordko
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What Causes a Reduction in Canadian Public Companies?

Post by Mordko »

adrian2 wrote: 06 May 2017 22:54
Mordko wrote: 06 May 2017 18:19 Perhaps that's why we have fewer and fewer publicly traded companies.
Care to substantiate?
Does the Economist provide enough "substance"? http://www.economist.com/news/business/ ... hy-decline
A big trend in American business is the collapse in the number of listed companies. There were 7,322 in 1996; today there are 3,671.
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Re: Home Capital Group (Symbol-HCG)

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Mordko wrote: 06 May 2017 23:11
adrian2 wrote: 06 May 2017 22:54
Mordko wrote: 06 May 2017 18:19 Perhaps that's why we have fewer and fewer publicly traded companies.
Care to substantiate?
Does the Economist provide enough "substance"? http://www.economist.com/news/business/ ... hy-decline
A big trend in American business is the collapse in the number of listed companies. There were 7,322 in 1996; today there are 3,671.
I thought "we" live in Canada and was expecting Canadian data.
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Re: Home Capital Group (Symbol-HCG)

Post by Mordko »

"We" invest worldwide, regardless of where "we" live. And if red tape and rules are causing a reduction in the numbers in the States, it's not very likely that more rules are going to have the opposite effect in Canada.

On a side note... How much the fact that HCG is listed has impacted its downfall? Would it have all this trouble if it was a Credit Union like Alterna or simply a private company?
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Re: Home Capital Group (Symbol-HCG)

Post by ig17 »

adrian2 wrote: 06 May 2017 23:13 I thought "we" live in Canada and was expecting Canadian data.
The amazing disappearance of the Canadian Public Company
Since 2007, the number of publicly listed companies in Canada has dropped 16.7 per cent, according to statistics from TMX Group Ltd., the company that operates both the Toronto Stock Exchange and the junior market TSX Venture Exchange.
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Re: Home Capital Group (Symbol-HCG)

Post by randomwalker »

Mordko wrote: 06 May 2017 23:38
On a side note... How much the fact that HCG is listed has impacted its downfall? Would it have all this trouble if it was a Credit Union like Alterna or simply a private company?
Probably a great deal, that's what happens when you have transparency and investors can actually see "what's going on under the hood" so to speak. While there are a number of publicly traded subprime lenders and Mortgage Investment Corporations (MICs) where the risk are set out and should be obvious (though the whole HCG debacle suggests this might not be the case) it is the billions of dollars sitting in private MICs and syndicated mortgages where I have some concerns in that their structures are relatively opaque and they are often sold to relatively unsophisticated investors as GIC or bond fund replacements. Clearly when one is privately investing in mortgages where there is no CDIC insurance involved and earning high single digit or even double digit returns then clearly there is significant credit risk, leverage or both involved. A further risk of course is liquidity as these vehicles are often more easier to get into than to get out of. I can't imagine what a run on a private MIC or syndicated mortgage firm would look like though I suspect these investors will suddenly find there are gates and maximum withdrawal limitations in the fine print that was missed while "reaching for yield."

"The large print givieth and the small print taketh away."

As an aside with respect to your mention of "Credit Union like Alterna" I gather Alterna has CDIC insurance for deposits. Personally I'm only interested in CDIC insured deposits, GIC etc. as credit union insurance DICO etc doesn't seem to have the explicit backing of either Provincial or Federal governments.
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Re: Home Capital Group (Symbol-HCG)

Post by scomac »

ig17 wrote: 06 May 2017 23:44
adrian2 wrote: 06 May 2017 23:13 I thought "we" live in Canada and was expecting Canadian data.
The amazing disappearance of the Canadian Public Company
Since 2007, the number of publicly listed companies in Canada has dropped 16.7 per cent, according to statistics from TMX Group Ltd., the company that operates both the Toronto Stock Exchange and the junior market TSX Venture Exchange.
I wonder if this is simply a cyclical trend. The cost and hassle of compliance may currently outweigh the benefits of public financing, but that may not always be the case. As fewer and fewer entities look to public markets for financing, the benefits of doing so will likely increase as the benefits of going privately will concurrently decrease. It will be simply a matter of supply and demand with pricing reaching a new equilibrium under both sources. I have no doubt that entrepreneurs will once again be tapping public markets for financing when it is particularly advantageous to them.
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Re: Home Capital Group (Symbol-HCG)

Post by Mordko »

randomwalker wrote: 07 May 2017 08:14
Mordko wrote: 06 May 2017 23:38
On a side note... How much the fact that HCG is listed has impacted its downfall? Would it have all this trouble if it was a Credit Union like Alterna or simply a private company?
Probably a great deal, that's what happens when you have transparency and investors can actually see "what's going on under the hood" so to speak.
Yes, but are the investors always reasonable? Are their interests well aligned with the other stakeholders? Do they really understand the problem and the risks? What about the shortsellers - are they making an elephant out of a fly?

That's the real question with HCG - do we have the case of a sound business being destroyed because of a mass panic provoked, at least partially, by lobby groups with financial interest in HCG downfall?
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Re: Home Capital Group (Symbol-HCG)

Post by AltaRed »

scomac wrote: 07 May 2017 08:45 I wonder if this is simply a cyclical trend.
As do I wonder. I suspect because of increasing regulatory burdens, and debt financing that has become so cheap, more companies have increasingly gone (remained) private. The digital age has also been a factor allowing news and faux news to spread so quickly, and retail investors to trade at the click of a mouse that companies are now more likely to live in glass houses. Perhaps this is as it should be. Less opportunity for shenanigans, less opportunity to deceive investors, etc, etc. I don't really think it is a bad thing.
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Re: Home Capital Group (Symbol-HCG)

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...but not having an opportunity to invest in a huge part of the market is surely a bad thing for the little guy.
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Re: Home Capital Group (Symbol-HCG)

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Mordko wrote: 07 May 2017 10:21 ...but not having an opportunity to invest in a huge part of the market is surely a bad thing for the little guy.
Hardly. There is more than enough candy in the candy store for anyone at the retail level. The relatively unsophisticated retail investor is better not to invest in anything but blue chips anyway. Would be much better off in TD than in HCG in the long run for example.

The Canadian retail investor has never had it so good (able to invest in cost effective ETFs) or 20-30 Cdn stocks and a few hundred US stocks/ADRs if so inclined to stock pick. Add the use of low cost discount brokerages and it's enough to make one almost giddy.
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Re: Home Capital Group (Symbol-HCG)

Post by scomac »

Mordko wrote: 07 May 2017 10:21 ...but not having an opportunity to invest in a huge part of the market is surely a bad thing for the little guy.
But there are opportunities for retail investors to access this at arms length through companies that specialize in providing financing to private businesses in exchange for ownership interests and royalty streams -- Alaris comes to mind. At least it allows a retail investor to spread his/her risk around with this method, but as always, those reaching for yield can make these types of riskier investments expensive -- supply and demand at work.

Having said that, I agree with AltaRed that there's still more than enough choice for retail when working from the pool of existing blue chip stocks to generate adequate returns. If you want more than that, you will have to take risks.
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Re: Home Capital Group (Symbol-HCG)

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AltaRed wrote: 07 May 2017 10:35
Mordko wrote: 07 May 2017 10:21 ...but not having an opportunity to invest in a huge part of the market is surely a bad thing for the little guy.
Hardly. There is more than enough candy in the candy store for anyone at the retail level. The relatively unsophisticated retail investor is better not to invest in anything but blue chips anyway. Would be much better off in TD than in HCG in the long run for example.

The Canadian retail investor has never had it so good (able to invest in cost effective ETFs) or 20-30 Cdn stocks and a few hundred US stocks/ADRs if so inclined to stock pick. Add the use of low cost discount brokerages and it's enough to make one almost giddy.
Of course Enron, Lehman and Washington Mutual used to be "blue chip" companies. Once upon a time. And small companies outperform - on average over long term. And how long before AirB&B might become a "blue chip"?

I do exactly what you are describing - invest in cost-effective ETFs, although I do that world wide rather than just in the US. The fact that the number of ETFs in the US is going to be larger than the number of listed companies is a bit of a worry. As is the inability to efficiently invest in good new businesses.
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Re: Home Capital Group (Symbol-HCG)

Post by AltaRed »

Mordko wrote: 07 May 2017 11:16 As is the inability to efficiently invest in good new businesses.
There are plenty of small and mid-cap stocks in both Canada (Venture exchange) and the USA (Russell 2000). The candy store is immense in my opinion. I don't understand how you can argue there are not opportunities to invest in new (good or not so good....only time tells you that) businesses. There is enough there to bankrupt you in no time, or if you are lucky betting on Red, a millionaire in short order.
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Re: Home Capital Group (Symbol-HCG)

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AltaRed wrote: 07 May 2017 11:49
Mordko wrote: 07 May 2017 11:16 As is the inability to efficiently invest in good new businesses.
There are plenty of small and mid-cap stocks in both Canada (Venture exchange) and the USA (Russell 2000). The candy store is immense in my opinion. I don't understand how you can argue there are not opportunities to invest in new (good or not so good....only time tells you that) businesses. There is enough there to bankrupt you in no time, or if you are lucky betting on Red, a millionaire in short order.
I agree .Savaria, CRH Medical, Poton Controls, Shopify MTY Foods, Cargojet are some of the small caps that have given be very, very strong returns over the past 2 years. I have a list of 4 or 5 that I am doing homework on now. I have dabbled with some US small caps with solid success. Pappa John's Pizza and some small regional banks has been very good.
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Re: Home Capital Group (Symbol-HCG)

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AltaRed wrote: 07 May 2017 11:49
Mordko wrote: 07 May 2017 11:16 As is the inability to efficiently invest in good new businesses.
There are plenty of small and mid-cap stocks in both Canada (Venture exchange) and the USA (Russell 2000). The candy store is immense in my opinion. I don't understand how you can argue there are not opportunities to invest in new (good or not so good....only time tells you that) businesses. There is enough there to bankrupt you in no time, or if you are lucky betting on Red, a millionaire in short order.
As I own the "total market", right now this is an issue of losing performance as more and more companies opt to go private. Clearly there will be winners among them.

If the trend continues - with the number of US listed companies now less than half of mid-90s, this will become a bigger problem.
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Re: Home Capital Group (Symbol-HCG)

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You have not liked global market performance the last several years? I might argue that the best companies remain....survivorship bias and today's market performance exceeds what it would have been if all those companies remained in the index.
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Re: What Causes a Reduction in Canadian Public Companies?

Post by Thegipper »

most of the famous nifty 50 of the 1960's are gone.
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Re: What Causes a Reduction in Canadian Public Companies?

Post by Chuck »

I would need to see some data on private company numbers to be convinced the issue is public companies going private. I don't believe that is the issue.

Number data was hard to find buy I did come across this snippet:
While representing less than 1% of the total number of firms, Canada’s mid‑sized firms (private
enterprises with between 100 and 499 employees) account for 16% of all jobs, and generate
12% of our national GDP and 17% of the value of our exports. Given this important economic
contribution, BDC wanted to understand whether they were growing or declining in size and
number – and why.
The results of our research are sobering. From 2006 to 2010, the number of Canadian mid‑sized
firms decreased by 17% (from 9,370 to 7,814). The manufacturing sector was particularly hard
hit, with over half of the mid‑sized firms disappearing from 2001 to 2010 (from 2,807 to 1,381).
The rise of China, the steep increase of the Canadian dollar, the credit tightening generated by
the financial crisis and the recession that followed certainly contributed to this decline.
This would indicate private companies may also be on the wane.
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Re: What Causes a Reduction in Canadian Public Companies?

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How did the Home Capital thread morph into this?
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Re: What Causes a Reduction in Canadian Public Companies?

Post by Taggart »

If there's a reduction in the number of public companies in Canada I haven't noticed. Sure I'm not exactly thrilled when one of the companies I own shares in get's bought out like Shoppers Drug Mart and Tim Hortons, but there's not much I can do about it. Seems to me I have a lot more choices now than back in the 80's or 90's. As of today, I have 70 TSX listed companies on my watch list, so I'm not complaining.
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Re: What Causes a Reduction in Canadian Public Companies?

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deaddog wrote: 09 May 2017 13:29 How did the Home Capital thread morph into this?
OOPs! I see now.

The headings confused me.
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Re: What Causes a Reduction in Canadian Public Companies?

Post by Peculiar_Investor »

Somewhat related, how about this interesting statistic from Bloomberg, There Are Now More Indexes Than Stocks - Bloomberg
The number of market indexes now exceeds the number of U.S. stocks. Traditional ones such as the S&P 500 are collections of securities weighted by market value, and index funds mimic them as a low-cost way to deliver the market’s performance. Many new indexes are different: They include stocks based on custom criteria, such as having low volatility or high dividends.

What drove the jump?

Demand. Many new benchmarks essentially repackage active investment strategies into indexes, says Eric Balchunas, senior exchange-traded fund analyst at Bloomberg Intelligence. They can then be tracked by so-called smart-beta ETFs, which fund companies are rolling out rapidly.
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