Mania sweeps the market

Private investors are stampeding into the stock market in a search for the Microsofts and Intels of the future. Will this bubble burst?

Britain is in the grip of an unprecedented share-buying frenzy, prompted by the lure of sky-high profits from fast- growing Internet and telecoms companies. The action this time is being driven by the private investor rather than the City slickers of the Square Mile. Yet the near- doubling of share-buying volumes by private clients in the last month is worrying both regulators and the broking industry itself.

Brokers report "phenomenal growth", "the fastest I've ever seen" and that "business has exploded". The difference between this and past booms, the privatisations of the 1980s and the building society demutualisations of the early 1990s, is that there are no giveaways on offer. This time, private investors have made their own mind up to buy into the next Microsoft, the new Intel.

One broker, Yorkshare, had its busiest day ever on Wednesday. Customers for Charles Schwab could not get through for two hours because buyers were jamming phones and Barclayshare is turning new clients away, unable to cope with the avalanche of orders for hi-tech and telecoms shares.

The facts of the month-old frenzy are simple. Brokers' systems are buckling under the pressure, so Britain's senior financial regulator, the Financial Services Authority (FSA) is launching an investigation. Even ProShare, the organisation which encourages wider share ownership, yesterday warned private investors to be wary of trading in the frenzied conditions.

Tony Hobman, chief executive of ProShare, said: "People should trade in shares only when the conditions are right for them." He had been told of private investors trading in shares using as little as pounds 100 in any one deal. Brokers' fees and stamp duty will quickly cut that to around pounds 80 at a stroke. ProShare recommends a minimum investment of around pounds 500 for each deal.

Chris Ring, managing director of NatWest Stockbrokers, harassed but exhilarated, said: "Over the last month volumes have doubled. Clients are snapping up all the hi-tech and AIM stocks but, interestingly enough, one of our top purchases remains Marks & Spencers. We've seen high sales when the building societies demutualised. But we've never seen such a sustained high volume of purchases. Its a sea change in private investor behaviour."

NatWest is taking more people on to cope with the increased business, taking orders and dealing, even drafting staff in from other parts of the bank. And Mr Ring sees no immediate end to it. "If the market keeps going up, with no setbacks, volumes could still increase. I expect that in the day and a half trading between Christmas and New year, the New Year tips in the papers could spur a further frenzy."

The Big City institutions look set to join in the race to "build the new economy" as Internet boosters put it.

But he warned: "Before the end of the year, liquidity in the market provided by the institutions in the next couple of weeks could dry up because of millennium fears. So the spreads facing private investors (the difference between a share's buying price and selling price) could be as wide as a London bus". He says it is vital to give your broker a price limit - saying, for example: "Don't buy above x, don't sell below y."

Paul Howard, product development manager with Yorkshare, an execution- only stockbroker in Bradford, says sales to private clients have "exploded". He added: "Tuesday was our busiest day ever. Sales have doubled in two months and we've had to recruit an extra 40 staff to add to our existing 100. Even after that we're still finding it hard to keep up with demand."

Yorkshare was launched by the Yorkshire Building Society in February 1994 and was bought from the Society last month by the world's second largest execution-only broker, the giant American company TD Waterhouse. This reflects the growing American opinion that its own appetite for share- dealing by individuals is finally catching on in a really big way Over Here.

"Many people are buying Techmark stocks," says Mr Howard, referring to the London Stock Exchange's hi-tech index launched on 4 November. Since then, Techmark has rocketed 38 per cent. He believes the private investor frenzy has been fuelled by TV programmes such as Show Me the Money, a penny share-tipping programme shown daily on Channel Four which has just finished a 13-week run. Teams of three take a notional pounds 100,000 pot and attempt to beat each other by picking penny stocks.

Terry Bond, an experienced private investor who writes a regular column for The Independent (see page 5), is worried by the way the show has been able to send shares soaring in minutes. "As soon as the market makers in the City see what's being tipped, they mark up the price," he says. The programme caught the public's imagination in a way not seen since the building societies started demutualising when millions of new shareholders were created.

Mr Bond repeats ProShare's warning. "People must look at the spreads of these penny stocks before investing. With stockbroker's charges, the spread can wipe out your profit with penny shares very easily."

At Charles Schwab, the giant US brokerage making waves in the UK, customers wanting to buy shares are being put on hold for up to two hours because there are not enough phone lines to handle the avalanche of calls. Schwab is hurriedly recruiting staff at its Birmingham head office to plug the gap. Guy Knight, European marketing director at Schwab, says business has been "just phenomenal".

Schwab publishes a Top Ten "buys" and "sells" each Thursday. This week the most bought share was "365 Corporation", an online sports and lifestyle content provider. Its shares have soared 77 per cent since its stockmarket debut a week ago. The top seller was BT, the copper-wire based dinosaur. But is all this frenzy - and discounting market hype, everybody The Independent spoke to agreed this is a frenzy - creating a bubble? Will share prices get out of hand, to be punctured when enthusiasm and/or cash runs out, perhaps sometime next year?

Brian Tora, chairman of the Investment Strategy Committee at Greig Middleton, a private client stockbroking firm, remembers only too well the last stock market crash 12 years ago. "The savage correction that took place in the second half of October 1987 appears as a small blip in a driving bull market that has continued now for two decades. But there are similarities between the period in the run up to Black Monday and the present which I find just a little disturbing."

And he warned too: "Deep down inside I feel it could all end in tears, but there are plenty of professional managers that are riding this particular bandwagon, because to ignore it could prove even more dangerous.

"There is no doubt we are in the middle of a revolution, the like of which none of us in the City have experienced. But I fear more than a few people will be severely financially damaged when it settles down."

So how long should you ride this particular Tiger? Mr Tora says: "If we sail through Y2K (the millennium bug syndrome) without too much of a blip, then this surge in prices may well continue."

This late surge should give you an opportunity to sell out before the chances of a crash increase, he says. The traditional stockmarket saying, "Sell in May and go away" could prove sound advice again.

John Willcock is The Independent's Personal Finance Editor

Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features playground gun massacre
Travel
travel
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookA wonderful selection of salads, starters and mains featuring venison, grouse and other game
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    VB.Net Developer - £40k - Surrey - WANTED ASAP

    £35000 - £40000 per annum + competitive: Progressive Recruitment: .Mid Level V...

    Digitakl Business Analyst, Slough

    £40000 - £45000 per annum + Competitive Benefits: Progressive Recruitment: Dig...

    Mechanical Estimator: Nuclear Energy - Sellafield

    £40000 - £50000 per annum + Car, Medical, Fuel + More!: Progressive Recruitmen...

    Dynamics NAV Techno-Functional Consultant

    £50000 - £60000 per annum + benefits: Progressive Recruitment: An absolutely o...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices