The rise of the stock market solo player
Mon Feb 26, 2007 9:49AM GMT
By Jennifer Hill, Personal Finance Correspondent
LONDON (Reuters) - Sex drugs, triple-X action and diet pills have
long dominated junk e-mail, but stock tips are on the rise.
Stock-related spam now accounts for 15 percent of inbox junk,
compared to less than one percent two years ago, according to
Internet security firm Barracuda.
The "pump and dump" scams -- whereby spammers buy low-cost stock,
then drum up interest to inflate the price -- might catch only the
most naive of investors.
And, thankfully so: those who buy into penny stock scams typically
lose 25-40 percent of the investment's initial value.
But the concept that investors can make better returns by going it
alone on the stock market, at the same time as saving on advice fees,
is one that has a growing band of champions.
It is a market that did not exist little over a decade ago, that has
been made possible by technological developments and the availability
of information.
"If you go back to 1994/5, the only way you could get access to real-
time share prices was to telephone your broker or ring a premium line
number," says Thomas Carruthers, who battled with the stock exchange
to enable the publication of real-time stock data in the mid-90s.
"That's changed dramatically; there's been a huge shift in the amount
of information and level of transparency.
"Real-time prices and (the rise of) online trading services allow you
to trade on your own judgement, instead of someone else's," adds
Carruthers, now chairman and chief executive of trading platform
Interactive Investor.
Company fundamentals -- profit and loss accounts, board membership
and share price history -- hitherto only available to professionals
can be accessed at the click of a button.
Some 57 percent of investors use the Internet to help them decide
what to trade, according to a study by execution-only broker TD
Waterhouse, while 41 percent rely on the financial press and
specialist magazines.
But over and above this new-found freedom for investors, there is
another good reason to fly solo on the market, says Alexander
Davidson.
The dealer-turner-author exposed wrongdoing in "The City Share
Pushers", the publication of which in 1989 led to a House of Commons
debate.
But, according to Davidson, even in today's rigorous regulatory
regime, loopholes remain.
"Those who take advice from stockbrokers run the risk that they don't
know what they're talking about or are just after commission," he
told Reuters.
"People (brokers) can still churn portfolios and do it in disguise by
making the private investor think they're making the suggestion to
change from one share to another."
The outlook for novice investors is the bleakest, he says, as leading
brokers, especially those in London, are more intent on chasing big
buck clients.
Legendary American investor Warren Buffett has highlighted the
absurdity: "Wall Street is the only place people ride to in a Rolls-
Royce to get advice from people who take the subway."
Go it alone, and the humble private investor could give the
professionals a run for their money -- and hit the big time.
Of that, Mark Shipman is proof. The 44-year-old left school at 16
with one O level and started work in the post room of an investment
bank. He was a junior dealer by 24, but left two years later,
somewhat disillusioned.
"Most of these dealers would walk in with the Racing Post or Sporting
Life in one hand and the FT in the other," he recalls.
"They used the same method for each (selecting race horses and
shares): there was no strategy."
Shipman had started his own investment company, Silver Knight
Investment Management, by 27 and retired by 33. Today, he owns nine
racehorses, and still trades financial markets with his own money.
The greatest advantage individual investors have, says Shipman, it
that they can choose to sit on the sidelines if no opportunities
arise; fund managers, in contrast, must invest irrespective of market
conditions.
And, as their professional counterparts become sidetracked with
beating benchmarks -- an index or peer group -- individuals can focus
on absolute returns, adds John Roundhill, corporate services director
of Capita Registrars.
And the secret to success?
"First of all, do a bit of homework and ensure you have the right
mental approach, a plan and strategy," says Shipman.
"Leave your ego behind -- make the assumption the market is always
right.
"If you do these things, there's no reason why you can't outperform
the professionals."
Other advice includes beware of tipsters, do your own research and
set limits, on when to sell, for example.
Above all, the golden rule is to run profits and cut losses. But that
is easier said than done.
"More and more people are going down this route irrespective of
knowledge or aptitude," warns Davidson.
"Nine times out of 10, people who go it alone will fail, but one time
out of 10 they will not.
"There's no easy way -- you're going to have to put some effort into
it. But no-one cares about your money like you do."
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