I read an article recently that took my breath away. It was discussing the move to private equity by wealthy investors. Private equity is when an entire company is controlled by a small group of investors and the stock is not publicly traded. The upshot of this article was that investment professionals quoted in the article preferred private equity over stocks. Why? One reason was because the prices are less volatile then publicly traded stocks.
I was stunned. Why is a private equity piece less volatile? Because you can’t get a quote on it easily. Getting a price to sell any private business is an involved process. So instead you assume that today’s price is the same as yesterday’s and will be the same tomorrow. Somehow the inability to get a quote for your piece of a business is an advantage. Apparently no news is good news.
I have an alternative suggestion for these investment managers. Buy a stock. Then buy a single copy of the Wall Street Journal. Then check that same copy every day to see how your stock is doing. And lo and behold, every day the price will be the same! That would be the same as their private equity investment.
The truth is that having a liquid market in securities is a good thing. Yeah, sometimes it may make us a little crazy as the price moves up and down. But the ability to have constant quotes and the ability to readily sell your equity is an advantage, not something to be shunned. There are advantages to private equity investments. But a lack of transparent pricing ain’t one of them.