Is there a new breed of self-reliant investors?

January 12, 2010

TD-James Daly is TD Waterhouse Investor Centre Representative regarding investor confidence.  The opinions expressed are his own.-

Will the new decade herald the emergence of a new breed of self-reliant individual investors?

Some seem to think so according to TD Waterhouse’s annual Investor Confidence Survey of over 1,000 individual investors across the UK, with over half (53 percent) of respondents stating that they now rely more on their own decisions when making investment choices compared to just under a fifth (19 percent) who said they look more to professional advisers and brokers than they did last year.

This disparity reflects an increasing trend of self-reliance, which may suggest that retail investors have become a more sophisticated bunch as they adapt to today’s unpredictable financial markets.

The research goes on to show that 64 percent of respondents state the internet as their most popular source of information followed by the financial press (58 percent).  Overall, the number of UK investors looking to professionals for advice on their trading activities has fallen slightly to a third (33 percent) while those seeking “do-it-yourself” tools from execution-only brokers has risen from 5 percent in 2008 to 20 percent in 2009.

In fact, the survey shows when it comes to investment services more UK investors (32 percent) are actively trading through execution-only brokers now compared to a year ago, while just 26 percent prefer to trade through an advisory broker.

It has been a rocky 15 months and we have seen many financial institutions falter and crumble under the pressure of liquidity constraints. If the news media is anything to go by, this has given rise to a general distrust in the transparency and accuracy of company statements and information from authority figures. While continually low interest rates have made it difficult for investors to gain returns from traditional investment options or cash on deposit.

Is it this kind of sentiment that has driven so many retail investors to go solo in their trading efforts or is it simply good sense to diversify your sources of information amid increased market volatility?

When it comes to executing trades, the survey reveals online trading is the method of choice for 60 percent of UK investors. TD Waterhouse has also seen a surge of online trading during the course of the last year, with August being a record month of online equity trades.

Volatility in the financial markets has certainly played its part. When looking at actual trading trends in more detail, a review of the most traded shares by TD Waterhouse customers shows that the trend was more towards buying than selling, with buys 17 percent of the sells in 2009.

Most customer activity focussed on Lloyds Banking Group, Royal Bank of Scotland (RBS) and Barclays, with all three stocks accounting for 66 percent of the overall top ten trades during the year.

With the volatility of banking stock there will be winners and losers, but the key questions for 2010 remain whether market volatility in general (and the temptation of making short-term gains despite the risks associated with stock market investment) has lured new “opportunist” traders who may not have considered trading before?

Or has the financial and economic crisis simply given birth to a new breed of lone traders who would much rather make their own decisions than rely on the advice of others?


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