Easy Access for Individual Investors

Easy Access For Individual Investors

The Internet and its graphical layer, the World Wide Web, have opened a raft of new communications paths between investors and those offering investment vehicles. But just how much has this contributed to the growth in the actual interplay between these two elements of the capital markets?
Alas, it seems, it is still too early for us to declare a sea change. There is no question the advent of Internet connections has meant more research and data gathering by individuals. And, new players have sprung up to offer stock on-line, even for company initial public offerings. But knowing whether their success is transitory or not is still out of reach for two reasons: the industry lacks good measurement devices, and the effect of a blazing US stock market has overshadowed any certain trends.

Wall Street Brokers

A quick look at the numbers for Wall Street firms makes clear the traditional intermediaries are not suffering. The last two years have been among the best ever with record earnings posted. Yearend 1996 figures showed profits up 50 per cent for some firms on Wall Street.
So it is sure that investors are still dealing with brokers as usual - after all, established ways of doing things are slow to change. Still, brokers have been making shifts in the way they act so that customers remain happy, and, of course, so that they don’t miss the boat if that sea change occurs suddenly.

At the front line, every major brokerage now has at least an information website. Many were slow to do so, but in early 1997 one can look on-line at growing offerings from Merrill Lynch, PaineWebber, Smith Barney and Dean Witter whereas even 18 months ago several of the biggest players were nonexistent or had simply paid lip service to opening a shop window.

More interesting are those who have begun to sniff a real divergence. Smith Barney reportedly surveyed its high net worth clients in 1996 and discovered that 69 per cent of these clients wanted a connection to Smith Barney via their personal computer.

The so-called discount brokers moved a bit more quickly. Quick and Reilly, Schwab and Co. and others were early adopters of on-line technology and have shifted to accommodate the Internet and Web approach. Much of the early work they had to do on their own. But now, suppliers of data, hardware and software are all lined up to support the Internet approach.

While not talked about much outside the trade, the traditional brokers and their suppliers also have positioned themselves to work with all players, including the lowliest individual investor, although not in the free and chaotic Internet style of which this medium was born. No; contact with your broker will be password controlled, monitored and managed by the broker -- subtlely, to be sure, but still with his hand firmly on the tiller. Access being worked on nevertheless uses Internet protocols and maintains its look and feel to the advantage of those of us who are happier at a keyboard where choice is still apparently ours, rather than on the phone.

All this means that the process becomes easier and cheaper to implement. Using Internet technologies, brokerage firms are now taking data from their vendors, using some customized, but mostly off-the-shelf software, adding research and client profiles, connections to account managers (your broker) and packaging a whole new product for communicating with investors.

The Corporate View

In the corporate world, individual investors are a clear target of company information on the Internet. The jury is out on the ultimate value of this communications medium, but companies are nevertheless filling up websites at a torrid pace. By end 1997 thousands of corporate sites were up and running, albeit in various states of value.
Investor Relations officers, however, believe this is a venue not to be missed. The 3,000-member US National Investor Relations Institute(NIRI) last year surveyed its members regarding the use of Web sites. By August of this year, the survey said, 84 per cent of the members expect to have at least a home page. Of these, 73 per cent would offer annual reports or other filings required by the US Securities and Exchange Commission.

And, without question, it is the individual investor who is targeted. The survey said:

"Specifically, the target constituencies for the homepages are: potential individual investors and customers (each named by 72 per cent of IROs in firms with or planning home pages), current individual investors (68 per cent) and those providing access to such retail groups -- brokers(56 per cent)."

An Individual's Experience

And what about the individual? There are an estimated 100,000 investors with on-line brokerage accounts, according to the New York Times. There are many more using on-line services to do research. Have things improved with on-line data access from the investor’s point of view?

Ellen McCormick of Nashua, New Hampshire, is a member of the "Dough Nuts," one of many private investment clubs operating under the auspices of the National Association of Investors Corporation (NAIC). She says on-line access has been positive both for her and her group, but she does not visit corporate sites that often. "I feel I will get a more unbiased look and (unbiased) comments from other sources."

The NAIC, whose member portfolios represent 64 billion dollars, says it has registered astounding growth during the current bull market. It now has 27,615 clubs with more than half a million members, compared to 12,429 clubs and 265,055 members just two years ago. No one can say how much on-line access has boosted participation in the group, but it certainly has helped make data acquisition easier.

For McCormick, it accounts for 80 per cent of her research activity, looking at on-line databanks ranging from Hoover’s Company Reports to Business Week and The Wall Street Journal. "I download information from various sources as well as call the companies directly," she says.

What Is Online?

As for what is out there in digital form, we would need an on-line library just to list it all.

The Annual Report Library (www.zpub.com/sf/arl), for instance, maintains a hard copy archive with more than 1.4 million documents from 160 countries. This includes ten years of annual reports on many companies and they have provided on-line pointers to hundreds of annual report sites. They, like many vendors of information, charge a fee for most services, but other sources are free.

The NIRI site at www.niri.org is a great starting point as many of its members have pointers to their home pages which contain excerpts from annual reports plus much, much more. Not all corporate sites are that helpful, but many work very hard at providing easy-to-use information, and some even allow e-mail queries using handy on-line, pre-addressed forms.

The Securities and Exchange Commission (SEC) is, of course, the prime US corporate information source at www.sec.gov. Its EDGAR data base provides without charge all required filings from publicly traded corporations, including forms 10-k and 20-f - - equivalent to the annual report but often with more data and without glossy graphics.

The Way Forward

Where is this all going? Well, with the continuing penetration of computers into the home and the tens of thousands of corporate PCs connected to the global net through browsers, there can be nothing but more involvement by individuals.

The continuous feedback loop being created will ensure better interaction as those supplying information pay closer attention to what users want, and make the whole process easier. Upheaval is sure, but it is far too early to say which intermediaries will be swept aside and which direct connections will become robust new channels of capital distribution and communications.

And there are lots of new contenders who believe they will create the best means of communicating and trading.

Still, conflicting interests are at work here. Brokers certainly want to keep their customers and find more. Corporations may not like the cost of dealing with individuals but they like their "buy and hold" history -- in contrast to the tendency of institutions to move more quickly in and out of a company’s shares.

As for individuals, the raging bull market has drawn many into share ownership, as has privatization. And, while the bull will some day stumble and stall the flow of cash into equities, the privatization trend is expected to continue and even pick up speed, especially outside North America.

Most importantly, individuals are getting on a more level playing field. They may not yet be in a position to trade as quickly as the pros, but they can get almost as much information and if they concentrate on a few stocks, they can actually gain an advantage over professionals who are more and more stretched in time available for research and analysis. One prominent analyst with a global brokerage in London told me early this year that he is now working well into the evening every night, just to get basic research done. And he has dozens of stocks to watch.

With Internet connections, one individual spending a few hours a week on just a handful of stocks may well outdo the professional in correct stock-picking, the dream of many and perhaps the reality of many more in the digital age.

[Taken From: Corporate Online April 1997]