The internet has revolutionised share buying for the private investor, bringing instant access to an avalanche of free information. From stocks and shares to funds, private investors can get their hands on research which has traditionally been the preserve of institutional investors and wealth managers.
This proliferation of information is spurring growing armies of hobbyist investors who are making investment decisions without the help of professional advisers.
“The information available today is like Aladdin’s cave – it’s just extraordinary the amount that’s out there and that is bang up-to-date,” says Paul Ranford, a 52-year-old private investor from South Bucks.
This data, if used shrewdly, can improve your performance, says John Langley, who is the treasurer of the Trans-Pennine investment club in Guiseley, West Yorkshire. “We’re five years old but our first four years were pretty disastrous. Last year we started to learn a lot more and by using these websites we started doing OK. We’re now 36 per cent up on our initial stake,” he says.
The secret is to sample widely from the broad menu of information out there without forgetting the golden rule of never believing what you’re told without researching it further. The need to delve deeper particularly applies when private investors are being bombarded with free information via e-mail and internet chatrooms, often proffering red-hot share tips.
Ranford admits to being an enthusiastic participant in the Motley Fool site’s Fool Community discussion boards. But he warns of rampers, people pushing shares they own to push up the price. “Don’t believe anything you first read on there. You need to check and double-check then go back and see if it fits into the jigsaw. Don’t do anything quickly,” he says.
Bob Evans, chairman of the Dore Totley investment club in Sheffield, says that the club treats all share tips with great scepticism, whatever the source.
Private investor Ron Harris from Leicestershire, agrees: “Even if I’m interested [in a tipped share], I tend to leave it for quite a while so that the initial burst has worn itself out by the time I reconsider it.”
Mary Collier, 63, founder of the all-women Northern Lights investment club in Inverness, uses share tips as a spring board for further research: “I get a tip watcher alert every morning from Digital Look in which they’ll give a summary of what’s doing well. I look into companies I recognise and have already read about. I can then open up company profiles, prices and brokers’ views on these companies on the sites. Hargreaves Lansdown also sends me free tips sheets and again, if it’s a company I’m interested in, I go and find out a bit more.”
While the internet offers a feast of financial statistics and investor tools, the snag has always been that prices and market news on free sites are delayed by at least 15 minutes, placing the private investor at a disadvantage to institutional investors which pay for research.
But that is changing. Digital Look offers real-time (level 2) prices, although only on UK stocks, while a site called Investegate gives up-to-date RNS news.
“If you get up at 7.30am you can get all the RNS announcements on Investegate, study them, figure out whether they’re positive or negative before the market opens – and often you can do that before the professionals have decided which way they‘re going to jump – and then buy or sell,” says Roger Lawson of the UK Shareholders Association (UKSA).
The site also offers free updates by e-mail. To this extent the gap between retail and professional investors is closing.
But Lawson says that to be on a true par with the professionals the private investor must still pay for services such as real-time streaming prices covering the whole market and hot-off-the-press (primary) analyst research on companies. “You can’t expect to be on a level playing field if you’re using a simple, execution-only, internet-based account,” he says.
Lawson and Ranford both subscribe to broker Charles Stanley’s execution-only Fastrade service for its real-time prices. This enables Lawson to view at a stroke the prices of the stocks in his dummy portfolio as they are changing. “The market tends to over-react both ways to various events so you have to be prepared to get out as well as in,” says Ranford.
Primary analyst research into companies also comes at a price. Richard Hunter, head of UK equities at discount broker Hargreaves Lansdown, says: “The hot-off-the press stuff is still mainly something that institutions will send to their own clients. Institutions have access to primary research where analysts have gone out to see the company, spoken with the management, kicked the tyres and so on. There are some retail stockbrokers who do primary research and to get access to that you need to be a client.”
But some free sites are partially plugging the gap. Execution-only broker TD Waterhouse offers clients free access to research in conjunction with Hemscott and UKSA members can join research trips to companies. This is especially useful for smaller cap companies which enjoy less analyst coverage.
There is another service advisory brokers can offer which free sites do not, says Ralph Hopton, secretary of Baywest investment club in Torquay in Devon.
Hopton says he saved himself £3,000-£4,000 a year when he switched from an advisory broker to an online execution-only service, but he admits: “The only thing I lack is the ability to ring a broker and say, such-and-such a share has just jumped or gone down 50p, what’s going on? While I can find out what happened, I can’t find out why.”
Don’t forget sites such as ft.com, Reuters and Bloomberg can keep you abreast of geopolitical events affecting the markets. This is an essential part of investing, says Ian Gunn of the Westbury Waddlers investment club at Bristol.
