Public vs private companies

This is Day 5 of the Foundation pillar. Tomorrow is the first Weekend Recap, and Sunday is your first Pattern of the Week. Today we set up a piece of context most beginners never internalize.

THE STRUCTURAL DIFFERENCE

A public company is one whose shares are registered with a securities regulator (the SEC, in the United States) and trade on a public exchange. Anyone with a brokerage account can buy a share. The company is required to file detailed quarterly and annual reports, audited by an independent accounting firm, accessible to anyone for free at sec.gov. Insider trading is regulated and disclosed.

A private company is everything else. The owners might be a single founder, a family, a private equity firm, or a venture capital fund. There are no required public filings. Shares (if they exist at all) trade by direct negotiation, not on an exchange. You generally cannot buy in unless you are an "accredited investor" — broadly, someone with $1 million in assets or $200,000 in annual income — and even then, only if a fund or company chooses to let you in.

The public companies are the ones we can trade. Apple, Costco, Nvidia, Microsoft. About 4,000 of them in the U.S., another few thousand on overseas exchanges.

The private companies vastly outnumber them. The U.S. alone has roughly 6 million private businesses with at least one employee. Some of them are tiny (a corner restaurant). Some of them are enormous (Cargill — the agriculture giant, $160 billion in annual revenue, family-owned, never been public).

WHERE THE ECONOMY ACTUALLY LIVES

Here is a fact that surprises most people:

In the United States, private companies generate about 60% of GDP and employ about 56% of the workforce. Public companies, despite getting nearly 100% of the financial-press coverage, are the minority of actual economic activity.

The composition of public vs. private has shifted over the last 30 years too — and not in the direction most people assume. The number of publicly-listed U.S. companies has fallen from about 8,000 in 1996 to roughly 4,000 today. Companies are staying private longer, going public later (or never), and getting taken private by buyout firms in larger numbers.

This is significant for two reasons:

First: the public market is a selected subset, not a representative sample, of the overall economy. The companies you can buy as a retail trader are biased toward larger size, more mature stage, and (often) more established business models. The cutting-edge growth — the Series A startup that becomes a $50B company — happens entirely in private hands. By the time a company goes public, the early-stage explosive growth has often already been captured by the venture investors who funded the private rounds.

Second: this changes what "growth investing" means in 2026 versus 1986. In 1986, a company like Microsoft went public at a $500 million market cap and grew 100× from there. In 2026, a similar company might IPO at $50 billion — a private valuation reached after 8 rounds of venture funding before the public market ever sees it. The 100× growth has already happened. The public buyer is buying a less explosive, more mature trajectory.

This isn't a reason to give up. It's a reason to be selective. The next decade's biggest public-market winners will not be companies at $1B valuations on IPO day. They'll be companies at $20B–$200B that find a second growth engine — like Nvidia in 2023 finding AI, or Apple in 2007 finding the iPhone. The work of identifying those is exactly what this newsletter is going to teach.

"The greatest stock-market winners of the last 50 years were not all small companies that grew up. Many of them were established companies that found a new product or a new management or a new market — what we call the 'N' factor in CAN SLIM."

William O'Neil, How to Make Money in Stocks

HOW PRIVATE CAPITAL SHAPES PUBLIC PRICES

Even though you can't directly trade private companies, the private capital markets affect every public stock you might consider.

When a venture-backed company raises a $500 million Series F at a $20 billion valuation, that valuation gets used as a comparable when public-market analysts price similar public companies. When private equity firms take a public company private (think the Twitter buyout, or the buyouts of Dell, Toys R Us, Kraft), they shrink the public float and influence the supply/demand picture for similar names that are still public.

When pension funds and endowments shift more capital from public equities to private equity (which they have done aggressively over the last 20 years), public-market valuations come under pressure even for great businesses, simply because there's less institutional money chasing public-market shares.

You don't need to track private capital flows in real time to be a successful trader. But you should know they exist, and you should not be surprised when a public company's price moves for reasons that don't show up in any earnings report or news headline. Sometimes the move is institutional rebalancing across the public/private boundary. Sometimes it's the supply curve shifting because a private acquirer is bidding for the whole company.