The Indexing End Game: The Wilshire 5000 Only Has 3,607 Stocks

Tyler Durden's picture

Submitted by Daniel Drew via Dark-Bid.com,

Numbers and false advertising have a long history: 4.9% unemployment, 2.5% GDP growth, 72 virgins. Now we can add the Wilshire 5000 to the list.

What started with good intentions ended with embarrassment as American economic dynamism collapsed in a cascade of falling profit margins, financial engineering, labor devaluation, and lopsided "free trade" agreements. In 1974, Wilshire Associates created the Wilshire 5000, an index of 5,000 stocks that represented nearly the entire stock market. As new companies went public, the index expanded over the years, reaching a peak of 7,562 on July 31, 1998. Since then, the number of companies has been cut in half to 3,607 as of March 31, 2016. Wilshire notes, "The last time the Wilshire 5000 actually contained 5,000 or more companies was December 29, 2005."

Wilshire 5000

The Wilshire 5000 is now 5000 in name only. Ben Carlson of the Common Sense blog calls it the "shrinkage effect" and blames it on the lackluster IPO market, which is a shadow of its former self. He notes, "From 1980 to 2000 there was an average of more than 300 companies every year that went public. Since then that number has dropped to an average of around 150 a year." It's yet further evidence of what I pointed out last year: The Stock Market Is Disappearing In One Giant Leveraged Buyout. The relentless pace of share buybacks and new highs in the S&P 500 point to nothing less than a slow-motion buyout of the entire market, which will widen the gap between the uber-rich and everyone else.

Index investing was supposed to be the last hope of the small investor. Even Warren Buffett, the Baghdad Bob of capitalism, pitches index funds to the average investor, specifically the S&P 500. The premise is that a diversified portfolio will go up over time, and so far, it has worked for anyone who has stayed fully invested. However, there is one simple problem:

What happens when we run out of stocks to index?

Today, it's the Wilshire 5000 that runs out of stocks. In 10 years, the S&P 500 investment committee will be grasping for shares, urging Larry Page and Mark Zuckerberg to issue D shares and F shares of Google and Facebook just to maintain the facade of diversification in an increasingly undiversified world.

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buzzsaw99's picture

It's yet further evidence of what I pointed out last year: The Stock Market Is Disappearing In One Giant Leveraged Buyout. The relentless pace of share buybacks and new highs in the S&P 500 point to nothing less than a slow-motion buyout of the entire market, which will widen the gap between the uber-rich and everyone else...

and yet all the maggoty billionaires are trying to scare us into selling our shares. lulz

junction's picture

For a look at how far matters have deteriorated, go to YouTube and view a few of the videos on the Ampex video tape recorders of the 1950s.  Two inch tape or one inch tape, it doesn't matter.  Progressing from audiotape technology only ten years old, Ampex manufactured giant video recorders, having capstan drives, pinch rollers, recording heads et al. engineered just for their video recorder, many of the parts precision machined from steel.  When Ampex first demonstrated its industrial video recorders to television executives, they were amazed at the invention.  Real technological breakthrough hardware done mainly by American engineers trying to be the first.  Somehow, much as I like Yelp and Waze, their technological achievements don't hold a candle to what Ampex achieved some 60 years ago.

PT's picture

USA Population:  320 million , Stocks:  3600  (1 per 88 000)
Australia Population:  23 million, Stocks: a tad under 2200 (1 per 10 000)

I never would have dreamt that, per head of population,  Aussies were "more Entrepreneurial" than the yanks.
Maybe yas need "more competition"?
Or is it our high minimum wages?
Maybe because we are a younger nation, competition has not yet had a chance to "do it's stuff"?
Or maybe I should keep my head down and STFU and hope no-one notices?  (Too late.  Damn!)
Or perhaps it doesn't matter.  Perhaps all (3600 US plus 2200 Aust) are majority owned and controlled by the same 13 families anyway so the little chunks really are irrelevant.
There you go, I've displayed my ignorance.  Anyone out there care to fill us in and give us a clue?

August's picture

There are quite a few ASX-listed firms that are not much more than a low-rent office and a couple of guys managing the remnants of a small resource company - essentially "shelf companies" that might be useful as an investment vehicle a bit down the road.

PT's picture

And the Yanks are too honest to do the same?    =)
Or prefer Economies of Scale and simply don't need that many shelf companies to achieve the same?

(Thanks for your reply.)

scintillator9's picture

The real fun, buzz, begins when there are only billionaires, trillionaires, and and quadrillionaires left in actual, not nominal, terms.

Does one actually believe that such "people" actually play well with others?

Think of how even a fun game of Monopoly with friends will sometimes devolve into something ugly at times.

It is going to make "Highlander" look like Sesame Street.

Spungo's picture

Leveraged buyout is best buyout

nakki's picture

I'll keep on saying it until it goes viral. 

Centralized Confiscation and Consolidation through Counterfeiting. 

And the Central Banks shall inherit the earth!!

 

GRDguy's picture

The old 1889 book The Great Red Dragon said it best:

"Their goal is to own the earth in fee-simple."

Globalization simply means world-wide plantation-izing.

 

Grandad Grumps's picture

DOW, S&P .. all fake.

tarabel's picture

 

 

If you exclude dogs from your index, you get a higher average share price.

Which in turn makes the US economy look healthier than it really is.

But the point of the Wilshire 5000 was to fully represent the entire economic spectrum.

Makes me wonder what sectors are under-represented in it and what names have been recently dropped.

Iconoclast421's picture

Eventually there will be only one stock left. And 99% of the shares will be held by central banks.

PT's picture

There will be 10 people making $1 per week.
Then there will be one more person, reportedly making $1000 per week.
The smartest person will say, "How can that be possible?  Combined, we only make $10 per week, so from where does that 11th man get the other $990?
And 8 people will say, "Shut Up, Conspiracy Theorist!!!"

wide angle tree's picture

Warren Buffett, the Baghdad Bob of capitalism

I got a laugh from that.

Atomizer's picture

We will fuck every cunt as an American. Brexit was wonderful. This shit with Obama needs to end. Enjoy. 

Corvus Corax - Chou Chou Sheng (Live)

cart00ner's picture

Just had a flashback of Borat - Running of the Jew.

https://www.youtube.com/watch?v=McN0JT7YChU

Atomizer's picture

We will kick that negro in the nuts. 

JerseyJoe's picture

The birth-death model is adjusted all the time to add jobs to the BLSBS jobs report from all these new companies.   

Whaaa?  Don't cha believe your own gubamint? 

 

Government needs you to pay taxes's picture

Soon there will only be shares in The Corpocrisy.  As safe as US Treasuries, with an equally (high) yield . . . negative.  We'll all hold these shares in our MyRA.  There will be no pension funds, bank accounts, IRAs.  Only shares in the Corpocrisy, held in our MyRAs.

Wahooo's picture

And you can buy cat food with your EBT card.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Aug 7, 2016 11:26 PM

Okay I read that and laughed. So basically the whole thing is a lie. From the names to the numbers to the supposed bullshit statistics.

Can someone please get in touch with the Dude? I think he should know about this shit! NOW!

dchang0's picture

What need is there for any size of stock indexes when everything is being engineered towards a single, global, government monopoly over all means of production?

Michigander's picture

Drop 3 zero's. The Wilshire 5.

Amazon

Microsoft

Facebook

Apple

Google

 

Nothing else matters.

 

Tom Green Swedish's picture

Stocks never get to the IPO phase because they are bought out well before they even make it. Other than a handful of tech stocks and they aren't doing well.