Power to the retail investor — shareholder democracy in action
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Margaret Thatcher promised a “shareholder democracy” during the mass privatisations of the 1980s. It may be finally taking hold in a former British Rail training college in Derby.
The art deco building — now a conference centre — hosts a unique annual event where the City meets the small investor.
Mello lasts just two days but has a whiff of Glastonbury spirit about it. There are four stages with an ever-changing line-up. The acts, bosses of Aim companies for the most part, are more likely to reference EPS than LSD. There are also superstars of the private investment world, such as Isa millionaires Leon Boros and John Lee, FT columnist and veteran investor. Other experts talk about how to hold directors to account or interpret cash flow figures.
But like the music lovers of Glastonbury, those attending feel part of a community — and a growing one. There are dinners, a poker night and a very busy bar as people swap tips and war stories.
The April event was a sellout with more than 500 attendees — 50 per cent higher than last year — including 50 company bosses. Gervais Williams, a fund manager who specialises in small- and micro-caps at Miton and one of the headliners, said Mello had “come of age”.
Its popularity is unusual in an era in which companies find it increasingly difficult to engage with small shareholders. Regulation means it is expensive to include them in initial public offerings. They cannot access analyst research. More companies are running online-only annual general meetings to save money and because so few people now attend in person.
But the Mello experience suggests there remain opportunities — and appetite — for dialogue between businesses and individual investors.
Investing in the germ of an idea
David Stredder, who wears a crisp open-necked white shirt, shoulder length swept-back hair and a golden tan, started the conference four years ago. He began buying shares after selling his sports media company aged just 39. He kept running into the same people at annual general meetings and suggested they hold dinners in London to which they would invite the chief executive of a listed company.
Calling it ShareSoc, he watched it grow in popularity. It now has 5,000 members and organises training seminars and small get-togethers with several chief executives. But Mello has become the flagship event.
Mr Stredder opted for Derby because it was central. A company he has shares in, RTC, also owns the conference venue.
Attendees came from Scotland and Ireland with the main body from London and its surrounds. Derby was a more “democratic” venue than London and had cheaper accommodation. “Our investors want to find things before the City wakes up to them. [They] hope to sell to them when they finally do and [the companies] are big enough.”
However, companies at the event are carefully vetted. Almost all are UK-based — Salt Lake Potash has a dual Australian listing and is looking to exploit potash reserves there. All generate revenue and almost all a profit.
Why do they come? Recent research from the Office for National Statistics showed that individual investors own 30 per cent of Aim (against 10 per cent of the FTSE 100). And they trade more often than institutions so can drive share prices on very thin volumes.
Neil Stevens is co-chief executive of Simply Biz, which provides back office services to fund managers and other financial institutions. While his counterpart Matt Timmins is in charge of the company’s stand Mr Stevens takes time to explain why they have both taken two days out of work, risking traffic jams on the M1 from Huddersfield, to meet people who might buy only a few hundred shares.
When the company floated in April with a valuation of £130m, the entire 50 per cent tranche went to institutions, locking out retail investors. Mr Stevens said it was “too difficult” to market to individuals because of onerous regulations. Ken Davy, the founder, still has 40 per cent.
“Liquidity is really important to us,” he says. “The institutions will hold for the long term. A £500 sale could drive the share price down by 10 per cent. We want willing buyers and willing sellers.”
Many company bosses at the event made the same point. Keith Hiscock, chief executive of Hardman & Co, a stockbroker, points to an anonymous example from September 2015. A financial services business with a market capitalisation of £200m gave a “relatively innocuous” trading update.
It suggested revenue could be slower than expected, a factor most institutions had expected because of similar updates by peers. But 0.2 per cent of the shares were sold, probably by panicked retail investors. The shares fell 20 per cent on the day and halved in two weeks, as market makers marked it down.
“Retail investors are much more important to quoted companies than many in the capital markets realise or want to admit,” he noted.
Zoo Digital, a Sheffield-based tech business, is one that does admit it. The company provides subtitles, dubbing and other “localisation” services for TV dramas and films so that they can be sold around the world. The reduction in DVD sales hit it hard, but it is now growing fast by working for streaming services such as Netflix and Amazon.
Stuart Green, chief executive, said it was paying for research that small investors could use. “They are very important to us,” he said. They generate a buzz about a business on blogs and share talk sites when it is getting ever harder to secure coverage in the mainstream media.
The companies’ market capitalisation ranges from £2m to £3.8bn, though almost all are under £100m. Their chief executives spend up to two full days on a stall in the main sunken lounge of the centre or side rooms. Some have products — Image Scan Holdings had brought its portable bomb detection unit. Others give away lollipops, chocolates or pens. It resembles a university milk round in reverse, with bosses being sized up by wary potential investors rather than attracting eager young employees. Each also gets half an hour to pitch to a room full of sceptical investors.
The growing demand for places leaves a problem for Mr Stredder: at next year’s festival he might have to find a bigger venue run by a company he does not have shares in.
Like Glastonbury, the Mello audience is made up of different tribes. They use products such as Isas and Self Invested Personal Pensions (Sipps) for tax-friendly investing.
They also like to look on the upside. None admits to making a loss and the more sophisticated ways of beating the taxman (and therefore lifting returns) are rarely mentioned. Many use business property relief, for which around half of Aim stocks qualify. Mr Stredder places half his investments as spread bets, which means he does not have to buy the shares and pays less tax on capital gains.
The ‘Tell Sid’ generation
Richard Goodwin grew up during Margaret Thatcher’s privatisation campaign in the 1980s. Utilities such as BT and British Gas were sold off with advertising campaigns such as “Tell Sid” urging the public to participate.
He used his student loan to buy stakes in WPP, the advertising group, Cordiant and Unilever. He bought WPP at 20p and sold between £1 and £1.50. They later reached £15.
Mr Goodwin, 46, owns a training company. “I am a big user of Stockopedia [a blog and valuation tool]. I follow David Stredder. He’s like a rock star for many private investors. He has the hair now as well.”
The youthful rich
Javed Abrahams, a professional poker player, was a first-time attendee. Fortunately for the others, he ducked out of the poker tournament that closes the last night. He sees shares as a less risky way to earn a living. He once lost £50,000 in a single game and his biggest win is £500,000, so big swings are nothing new.
In his 30s, he typifies a new generation that have earned their money young and do not trust traditional advisers to look after it.
“This is my first time at Mello. I have made some money and thought the stock market is less risky than poker,” he said. “It’s important for me to meet the people behind the companies. I want to look them in the eye and see what kind of people they are.”
The entrepreneur who cashed out
Also at Mello were husband and wife investors Adrian and Jo Woodward, 63 and 57. Mr Woodward inherited a textile business in Derby, which dyed and finished wool but was hit by relentless cheap competition from overseas. He sold it in 2003 but decided he was too young to retire.
“I thought I would get into shares. I have made more money from investing than I ever did running a small business,” he says ruefully over a baguette in the conference centre bar. “I like the intellectual challenge.”
When his wife retired a couple of years ago he persuaded her to take an interest as well.
The female empowered
Companies are also waking up to the power of women, as they become increasingly self-reliant in planning their financial futures. At a crowded panel session on women and investment, Judith McKenzie, a partner of Downing, a small-cap investment house, cited research that showed female fund managers outperform male ones by a percentage point. (Others say this is only because the bad ones do not last as long as their duff male counterparts).
Ms McKenzie says women read the body language of management teams as well as looking at the numbers. They also tend to be more cautious and make fewer “testosterone fuelled” big bets.
Tamzin Freeman, 50, started investing seriously after losing thousands following the collapse of shares in Lloyds and HBOS in the banking crisis of 2008. The advertising executive decided she could no longer rely on others to look after her money.
“I wanted to understand what had happened,” said Ms Freeman, whose portfolio returned 35.5 per cent last year and 20.5 per cent over the last five years on average.
The disappointed pension savers
Brian Copestick, 58, started investing when he realised his pension would not sustain the lifestyle he had expected. “I was paying these people to invest for me and I just watched the sum of money flatline. It wasn’t getting bigger.
“So I decided to do it myself. I read some books. It is not as hard as you think.
“The state is doing less and less for people so you have to take responsibility yourself. I think the private investment community is going to grow massively.”
Mr Copestick now spends an hour a day keeping on top of his portfolio, but trades rarely. He uses Stockopedia, a website with its own method of rating shares, as well the FT Money section.
He is perched in the corridor of the Derby conference venue with his friend Doug Dalcamara, laptops on knees, searching for news and views on their investments.
After meeting in St Albans, where they live, Mr Copestick persuaded Mr Dalcamara to start investing for himself when he retired. Now 66, the latter worked for Toshiba for 27 years but says his pension is pitiful. He admits that with more than 40 companies his portfolio is too big. “It takes too much time to monitor so I need to reduce it.”
The new faces of private investment
Tools of the stock picking trade
The new breed of small investor is no longer confined to the pages of national newspapers and specialist magazines in their search for information. An industry has sprung up to serve them.
Many still rely on the Financial Times or Investors Chronicle for views and analysis. But also popular is Stockopedia, an online blog and information provider founded by Ed Page Croft.
UK membership costs £225 a year and covers more than 2,000 stocks with options to expand to the US, Europe and Asia. The site has its own “traffic lights” rating system which is simple to follow. Stocks are rated for quality, value and momentum and given an overall rank as well as a risk rating.
PI World is a website that includes interviews with chief executives, company presentations, and advice from investors.
There are also popular writers and bloggers who can now be instantly followed on Twitter for free. Rebecca Stewart goes by the alias Aston Girl tweeting as @reb40 while Mello founder David Stredder is another (@carmensfella).
Investing from an early age
Rebecca Stewart began investing at the age of 12 after a £25 premium bond win. Her father, who worked for the National Trust, encouraged her to put it into shares. “My father thought women should have the ability to be financially independent,” she recalls.
It was 1980 and after a senior partner at Newcastle stockbroker Wise, Speke & Co (since merged with Brewin Dolphin) gave her some free advice, she opted for Marks and Spencer.
Over the years, between having children, she continued investing. She now works as a gardener but starts her day reading RNS notifications — stock exchange announcements — and has almost 50 stocks. “I am better at buying than selling,” she admits.
Ms Stewart, 49, said most people should be able to find £50 a month to invest. She has a Sipp for her husband and herself and junior Isas for her three teenage children. “The shares help pay the school fees,” she says.
Last year her portfolio returned 38 per cent but this year so far has been harder, delivering just 3 per cent.
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