Did you realise the majority of funds invested by individuals or your super fund don’t actually create jobs or foster innovation?
Reason being is that the majority of investors buy shares from individuals in preference to investing funds directly into the actual entity.
Why the preference? Most people prefer to buy and sell shares on the Stock Exchange. Trouble is while the funds invested may improve or diminish an individuals financial net worth they seldom do much for the company’s.
The trillions of dollars in Superannuation funds buy and sell capital that has already been invested in a company. There are some interesting stats on this.
In 2010 Morgan Stanley looked at small business financing and published their findings on SME’s and the credit crunch.
FINDINGS: SME’s generate roughly 45% of business revenues but account for less than 5% of capital markets activity. But it gets worse. Businesses with a turnover of less than $25 million per annum account for less than 1 % of capital market activity.
Which means that with more than 6 Billion shares traded on the average day none of this money traded actually goes in to businesses yearning for capital to expand, grow, employ more people and reach new markets.
Most super funds are invested in the shares of big corporations. Not one cent goes to your local businesses. Banks still hugely profitable in these tough times, supported by governments and holding the nations savings also are reticent to support the businesses that create jobs and provide the corporations of tomorrow.
As huge corporations continue to shed staff due to internet driven efficiencies governments are beginning to realise that it is SME’s that provide job growth. But there is no place for the investment funds required to come from.
Banks consider SME’s too much of a risk, Business Angels usually have too many to consider and are very choosey, Venture capitalists are becoming more an more scarce. Fund Managers prefer traded equities.
This highlights a failing in today’s financial system. Instead of capital being used for productive purposes it is used in speculative trading, bundled securities like mortgages and what is cool at the moment. This mean that of the trillions of dollars that flow through the worlds stock markets only about one percent goes to productive use. Productive use is funding companies through early stages and IPO’s so that they can innovate, expand, employ more people and keep growing.
As an example lets look at NASDAQ. In 2010 companies raised a total of $14.8 billion in IPO’s and secondary offerings. Of the $2.9 trillion in shares traded on NASDAQ that year this represents just one percent .
On an SME Capital Raising Platform like ASSOB, 100 percent of capital raised is invested in assisting businesses to grow and foster innovation.
Some high profile investors also operate this way. Take Warren Buffett.
While most investors follow the market and eventually buy shares in the company they favour, they usually wait for the company’s stock to move to a certain level before they decide to sell. Warren Buffett looks extremely carefully at a company, talks to the owners, current investors, business plan, etc. If he likes what he see and hears he usually buys a large percentage of the company by having shares issued by the company in exchange for cash. It doesn’t stop there though. Warren Buffett then works to ensure that the company is successful. He does this buy engineering partnerships with his other companies, organising deals with the government, and sometimes changes their business models.
In doing this his investment is assisting in growing the business and if new employees are required, employing them.
On the ASSOB Capital Raising Platform investors invest directly into the companies. Sometimes they get involved as mentors or Directors of the business.
Check your investment modus operandi. Maybe a percentage of your investment can be shifted to the productive rather than the market.