The Fault Lines of Capitalism Emerge, Shaky Capital Markets and the Rise of the Empowered Investor in 2017

The year of 2017 will be a time of evolution in our form of capitalism and our capital markets. Investors will have a newfound role and the confluence of these changes will impact our lives more than any one idea or innovation.

The US economic system of capitalism is based on private citizens owning the country’s means of production and receiving goods and services from companies to sustain their lives. At the same time, we give companies capital to produce the goods and services as we invest in stocks and bonds in the capital markets. In return for our invested dollars, we have a chance to make money when the company does well.

Our capitalist economic system works when our citizens are able to have enough money to buy stocks or bonds. In effect you need to have money to make money. Right now, half of our population owns no public securities at all, not in retirement or other accounts. Why? Because they cannot afford to buy them. So what are the implications of half of our population having no ownership in the country’s means of production? It is a ticking time bomb that is likely to cause more social and political unrest.

This is likely to be exacerbated in 2017 with more contract workers with no company benefits or retirement accounts and the downsizing of the labor force due to robots and automation. Because capitalism is focused on corporate profit as the sole metric and driver for investment returns, greater economic inequality is the likely outcome.

More Volatility and Threats to Our Capital Markets

The ability to raise capital in the capital markets is the lifeblood of our capitalist system. In the past few years, there have been some new and unpredictable events that are influencing and changing the capital markets in a profound way.

The year ahead will be full of surprises with a new administration and new rules. For example, the President-elect recently tweeted comments about Boeing, a public company, and his tweet immediately lowered the company's stock price. We have never experienced before the way a tweet can influence the market and penalize a public company.

The markets react to quantifiable information like quarterly earnings and financial metrics. The markets also react to emotions such as fear, optimism and uncertainty. There are many more factors influencing the markets today such as cyber security and international unrest and terrorism. Most of those factors fall into the category of “Impossible to Know.” Uncertainty equals more risk and as the list of “unknown” factors grows, so does market volatility.

Beyond that, imagine what will happen if “fake news” is introduced to manipulate our capital markets or is directed to influence the stock price of a specific company. We are entering a new era where technology can be used for good or evil.

In looking at the private market for venture and growth capital, there are also troubling trends that are altering the landscape. There is a consolidation of opportunity and wealth creation in a small number of venture capitalists and institutional players that direct billions of dollars of capital in a closed system that is inaccessible to most. In addition, when companies stay private for longer or don’t become public companies at all, that means the upside in new companies and wealth creation is reserved for a small club outside of the public domain.

The Empowered Investor Emerges as a Force in 2017

Not long ago, I heard a Chief Investment Officer from a top Wall Street firm say at a dinner of successful entrepreneurs, “Check your emotions at the door with your coat. Investing is a cold and calculated business.” That went over like a lead balloon with passionate founders. The old way of "experts" or middlemen standing in between you and your money is facing push back. Technology gives us more options, the way to process more information and to incorporate both our right and left brains in the investment process. That is a good thing.

We are in a time of information overload, more complexity and more risk. We have the tools of technology with formulas and programs that can automate how you invest in the public markets based on market indexes that track the market. These online investing platforms will take care of one part of your portfolio and that will allow you to focus more narrowly on investments in private companies that can excite you, have the potential for higher returns and bring you more satisfaction.

Investors in 2017 will have have new ways to direct their future and invest in private companies that they can know and want in the world. Because of the newest and emerging technologies, investors will find purpose through investing. They will have transparent, swift and individualized information to guide their investment choices. They can use both their head and heart to transform and modernize the metrics around value and return. And beyond financial return, we can revel in the feelings of excitement that come from knowing a visionary founder or the relevance we feel in the world as we help direct the future. 

This article is part of the LinkedIn Top Voices list, a collection of the must-read writers of the year. Check out more #BigIdeas2017 here.