Choices, Action or Inaction
In her book “Locavesting”, Amy Cortese writes about the value of investing in local economies and businesses. Her book outlines in great detail the dramatic effects that we all could enjoy from such efforts. I suggest that anyone that has any desire to contribute towards the improvement of our economy, purchase this book and read it from cover to cover. I think that you may come to see the vision and value of investing in small businesses after you finish.
Small businesses and emerging growth companies are the driving force of the American economy. These businesses generate eighty percent of our jobs and half of the American GDP. These companies also create the foundation for healthy, diverse regional and local economies, yet the capital markets for these small emerging companies are practically closed.
Here is an interesting fact. In 2010, $14.8 billion was raised on the NASDAQ stock exchange. That same year $2.9 Trillion in shares traded on the same exchange. That means less than 1% of the money flying around that stock market went to funding businesses through public stock offerings; the rest was speculative trading. Wow!
Another problem is that the market for small company IPO’s has decreased dramatically. The median IPO size 20 years ago was approximately $10 million; by 2009, it was $140 million. This means that the IPO market is effectively closed to 80% of companies that need that important access to growth capital. The traders on Wall Street are not investing in these small companies. This means that it is up to you and me to make these crucial investments in our economy. What better time to invest than now? The economy is not exactly is a high growth mode and the golden rule is that you invest during the down turns and sell during the up swings.
I know, I know, times are tough and there is much uncertainty in the economy. Where on earth are we supposed to get the money to make these investments? Well, this is where Choice comes into play. We have a choice to take action or to sit on the sidelines and be inactive. One way that we can choose to take action is to simply alter or change our investment allocations.
Think about this; by the second quarter of 2011 there was $18.2 Trillion in U.S. retirement assets. IRA’s alone, represented $4.9 Trillion of that pool of capital. If Americans shifted just 1 percent of their IRA investments to small American growth companies, more than $49 billion would be injected into the Main Street economy – without costing the government a dime!
Another way to re-allocate is to choose to spend less on other items. Here is a silly idea, but it illustrates the point. Lottery ticket purchases are a large source of capital that can be re-allocated.
In the state of New York the per-capital income is $31,796 and the median household income is 56,591. Not exactly the kind of income that is causing savings accounts to burst at the seams. Yet in 2012 alone, New Yorker’s spent over $8.4 Billon on lottery games and this does not include money spent at casinos in the state.
Now of course, the lottery is a valuable tool and pays for some very important educational programs, so I am not suggesting that we do away with the lottery and invest all of that capital into small businesses.
However, it is a choice. What if a percentage of those dollars were indeed re-directed toward investment? How many new businesses can be created? How many businesses could get access to important growth capital? How many jobs could be created? How many companies could be attracted to the state? And remember, the above numbers represent only one state!
The point here is regardless of what direction economy is going, business will continue to operate and look for capital. We as individuals can choose to participate or not. I think that if you stop to consider the cumulative effect of ACTION, you will find that “we the people” have more power to change the course of our economy than we tend to realize.
“Act as if what you do makes a difference. Because it does”