Why are there no great cham­pi­ons of stock mar­ket in­vest­ing?

The Daily Telegraph - Your Money - - YOUR MONEY - Richard Dyson

How has Bri­tain lost its love of – and con­fi­dence in – the stock mar­ket? How did this coun­try go from be­ing an out­stand­ing pioneer in the process of pool­ing money with which to back new ven­tures – with all the risk and po­ten­tial profit that en­tailed – to one where the aver­age saver doesn’t un­der­stand the stock mar­ket and/or mis­trusts ev­ery­thing to do with it?

We’ve be­come a na­tion of re­luc­tant in­vestors. If we own shares at all, it’s be­cause we’re forced to do so through be­long­ing to pen­sion schemes.

Only a dwin­dling mi­nor­ity of peo­ple own shares di­rectly.

Some of this is struc­tural. In­sti­tu­tions, and in­creas­ingly overseas in­sti­tu­tions, have come to dom­i­nate stock mar­kets that just two gen­er­a­tions ago were pri­mar­ily owned by in­di­vid­ual share­hold­ers.

So Lon­don’s stock mar­ket, still one of the world’s big­gest and most im­por­tant, is now just 11pc owned by in­di­vid­ual in­vestors. In the 1960s in­di­vid­u­als owned more than half of ev­ery­thing listed there.

This in­sti­tu­tion­al­i­sa­tion and in­ter­na­tion­al­i­sa­tion of the stock mar­ket is per­haps one rea­son why savers per­ceive it as re­mote and in­com­pre­hen­si­ble.

The rise of elec­tronic “nom­i­nee” ac­counts – where share­hold­ers are ef­fec­tively sev­ered from a di­rect re­la­tion­ship with the com­pa­nies they own – is an­other fac­tor.

Older read­ers might re­call a dif­fer­ent cul­ture, when shares and com­pa­nies’ for­tunes were more com­monly dis­cussed, al­most the fare of fam­ily meal­times.

I re­mem­ber my grand­mother’s weather-beaten box file of share cer­tifi­cates and her in­ter­est in the busi­nesses she owned. Vot­ing forms, div­i­dend state­ments, an­nual re­ports – th­ese were a large part of her ev­ery­day post, even though she was far from wealthy.

To­day sus­pi­cion has at­tached to share in­vest­ing. Voices on the Left sneer at the mar­ket, writ­ing it off as a ve­hi­cle of priv­i­lege, even where it is un­der­stood that so much of all work­ers’ pen­sion wealth is tied up in shares.

To­day when we dis­cuss com­pa­nies and brands it’s in­evitably from the point of view of con­sumers: we’re talk­ing about the prices of goods, bar­gains, fash­ions.

Sep­a­rate from all this, a dif­fer­ent line of crit­i­cism has at­tacked bro­kers and fund man­agers as­so­ci­ated with the stock mar­ket – and thus the stock mar­ket it­self – as a cesspool of rip-offs and cons. This is wrong and dan­ger­ous.

What­ever the cause, the trend away from eq­ui­ties doesn’t seem to be re­vers­ing. The graph shows an­nual con­tri­bu­tions to Isas split by type: cash or stocks and shares.

Con­tri­bu­tions to both types of Isa have grown sig­nif­i­cantly as the al­lowance has been in­creased. But cash is a dis­tinct favourite.

If you look fur­ther back – to when the “Pep” sys­tem was in place in the Nineties – there was a far greater con­tri­bu­tion to shares than to cash. But that was be­cause Pep rules made a pri­or­ity of share in­vest­ing. The more lib­eral Isa sys­tem, by con­trast, has given savers greater choice over whether they opt for cash or shares – and their choice is clear.

No re­li­able statis­tics are col­lected to show what pro­por­tion of Bri­tons choose to in­vest in shares or shares­based funds, but th­ese Isa fig­ures are a proxy. Of th­ese ac­tive savers, just one in four chooses ex­po­sure to eq­ui­ties. So out of a wider pop­u­la­tion in­clud­ing peo­ple who don’t ac­tively save, the pro­por­tion is go­ing to be smaller.

In Amer­ica the cul­ture of share own­er­ship is quite dif­fer­ent.

Gallup, the poll­ster, con­ducts an­nual polls on stock own­er­ship in Amer­ica and its lat­est snap­shot – from 2016 – found that 52pc of adults owned shares or funds in­vest­ing in shares. This, in­ter­est­ingly, is down from 65pc in pre-cri­sis 2007, sug­gest­ing that a sim­i­lar dis­af­fec­tion has taken hold there.

The great­est dan­ger of over­look­ing the stock mar­ket – or de­mon­is­ing it – is that savers miss out on re­turns.

Par­ents who to­day in­vest their young child’s Ju­nior Isa in cash are tak­ing a huge risk. Last week num­ber-crunch­ers at in­surer Royal Lon­don worked out that cau­tious Isa in­vestors, who chose cash over stocks-and-shares, had for­feited an aver­age £5,000 in re­turns over the past tur­bu­lent decade.

But there are other prob­lems with sidelin­ing the mar­ket. One is that share­hold­ers re­main an ef­fec­tive, if im­per­fect, way of gov­ern­ing a cor­po­rate world. There should be more of us.

‘Par­ents in­vest­ing a young child’s Isa in cash take a huge risk’

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.