Insight into the stock market

l.o.jones8686

This is perhaps a question for the more financially advanced posters. I was recently looking at research on the stock market and noticed that the number of private investors (every day people as opposed to fund managers) investing in the London stock exchange have decreased significantly. In the '60s, over half of the London stock exchange consisted of private investors and now little over 10% is made up of every day folk.

I have two questions: why do you think so few people now invest in the stock exchange and secondly, if you do invest in the stock exchange, what process do you use to select a stock?

Archi_Bald

People invest through brokers and fund supermarkets rather than directly with an exchange.

Thrugelmir

Overseas investors now own the majority of UK quoted companies. Selling assets to balance the books is unfortunately a sign of the UK's balance of trade deficit.

ChesterDog

When you say "...so few people invest in the stock exchange..." perhaps more are now doing it via those very fund managers rather than directly in individual stocks.

Also, using proportions (ie percentages), one cannot assume that a lower value for a variable means a lower number. The 'new' 10% could represent a higher number of individual investors than the 'old' 50+%.

jimjames

l.o.jones8686 wrote: »

I have two questions: why do you think so few people now invest in the stock exchange and secondly, if you do invest in the stock exchange, what process do you use to select a stock?

Can you provide any links or evidence for these statements?

To me I'd expect the opposite. In the 1960s most people had company pension schemes and very few had directly invested pensions, now the vast majority have DC schemes that are invested into shares so I'd expect the number of people who invest now is much higher although some won't realise they are investing.

chucknorris

l.o.jones8686 wrote: »

I have two questions: why do you think so few people now invest in the stock exchange and secondly, if you do invest in the stock exchange, what process do you use to select a stock?

I don't invest in single shares (unless it is something like the Royal Mail in the short term).

I invest for the future dividend income that will form a significant part of my retirement income, it is very tax efficient. Looking ahead after April 2016, with a £5k additional allowance, and only 7.5% and 32.5% tax bands (I am unlikely to be in the higher tax band of 37.5%).

Linton

l.o.jones8686 wrote: »

This is perhaps a question for the more financially advanced posters. I was recently looking at research on the stock market and noticed that the number of private investors (every day people as opposed to fund managers) investing in the London stock exchange have decreased significantly. In the '60s, over half of the London stock exchange consisted of private investors and now little over 10% is made up of every day folk.

I have two questions: why do you think so few people now invest in the stock exchange and secondly, if you do invest in the stock exchange, what process do you use to select a stock?

I believe you are wrong when you say very few people invest in individual shares. Look at the figures from the ONS here. About the same amount of UK equity is held by UK private investors as by unit trusts /OEICs and investment trusts.

What has changed markedly since 1960 is the % ownership. The reason why is that in 1960 to buy shares you had to work with a personal stockbroker or possibly a bank and needed to be fairly rich. Share ownership of any form was very much a niche activity. Private pensions werent available. Those pensions which were available (and many people would not have had a pension) would have invested rather opaquely - eg DB pensions and With Profits funds.

What has changed is that online dealing has made share and fund ownership available to anyone with even relatively small amounts of money. Also the pressure on people not to rely on the State Pension, the failure of the DB model to cope with the increased longevity, and possibly the increased education of the bulk of the population is making both increasingly necessary and possible for many more people to get involved with investments. Funds provide the best way of accessing the stock market for the small investor, and in many cases for the large investor.

Another major change is the % foreign ownership. Now more than 50% of UK quoted shares are owned by foreigners.

I personally only invest in individual shares for part of my my income portfolio. Share are chosen on the basis of current % yield, a history of high yields, evidence that the yield is sustainable, and the nature of the company's business compared with the current sector allocation of the overall portfolio

Atreyu107

l.o.jones8686 wrote: »

This is perhaps a question for the more financially advanced posters. I was recently looking at research on the stock market and noticed that the number of private investors (every day people as opposed to fund managers) investing in the London stock exchange have decreased significantly. In the '60s, over half of the London stock exchange consisted of private investors and now little over 10% is made up of every day folk.

There's a very simple answer to this question.

Almost all financial institutions now use a 'nominee' structure to hold stock. This is especially true for online stock-brokers. If you go online and buy stock via Hargreaves/III/Best Invest etc, they'll hold your stock in one of their nominee accounts. That account is what appears on the share register. You are the beneficial owner, but they are the legal owner.

Very few people hold share certficates these days, but without having your own CREST ID, there's no other way of holding stock directly with the company.