That, in essence, is the conventional argument on where the private shareholder stands. According to Sir Mark Weinberg, chairman of a committee set up by the Stock Exchange to examine whether the private investor is a dying breed, there is some truth in all this. But his committee's report, published last month, predictably got a poor press, with most commentators saying that he had failed to come up with enough specific recommendations to reverse the trend.
Sir Mark's real offence seems to have been that he failed to criticise strongly enough the Stock Exchange's new rule allowing companies to exclude private investors from most new issues if they so choose. It was this decision which originally prompted the setting up of the committee. In addition, he said it was largely up to the financial services industry, rather than the Government or the Stock Exchange, to come up with ways of tempting more private shareholders back into the fold.
Neither conclusion was guaranteed to win any plaudits from a constituency which prefers decisive-looking actions to well-meant words, and which has long marked the Stock Exchange down, not entirely without justice, as an enfeebled and not very effective organisation. Yet, in my view, Sir Mark is largely right on both counts. In fact, I would go further in saying that the outlook for private shareholding is probably brighter now than it has been for some time - partly because of new technology, and partly because of the recent changes in the financial services industry, which have introduced much more effective competition.
The impact of potentially low-cost PC-based systems for communicating information, coupled with the growing awareness that financial services can be marketed successfully as consumer items like many others, should be eventually to transform the way that shares are owned and regarded in this country. What we have lacked so far is the emergence of a firm with the courage and resources to do for personal investment what Direct Line has done so successfully in insurance.
The market is certainly there, waiting to be exploited. The committee's research suggested that concern over the fate of the private investor should not be exaggerated. For example:
Although private investors inevitably hold a much smaller proportion of the quoted stock market now than they did 30 years ago, this is largely the result of the growth in pension funds and life insurance industries over the period. But the number of individual shareholders has risen from 3 million to 9 million, largely as a result of the privatisation programme.
Although private investors appeared to be net sellers of shares in the 1980s, the strong growth in share prices means that direct share investment still represents a larger proportion of the nation's personal liquid wealth than it did 20 years ago. (Remember also that the average pension fund has some 80 per cent of its assets in the stock market, so the proportion of the nation's total wealth now represented by shares is certainly at record levels).
With the huge growth in the unit trust and investment trust industries over the last 30 years, investors now have a much wider range of choice over how and where to invest their money in shares than they did before. Contrary to popular impression, the proportion of the population which holds shares directly in the UK is also about the same as it is in the United States - and still far ahead of most Continental countries.
Despite this evidence, what is not in doubt is that the bulk of the population is still largely ignorant about the stock market and unaware of the benefits to be had from putting money into shares as a long-term investment. Sixty per cent of the population still do nothing but hold all their spare cash in a building society or bank, regardless of whether it is long-term or short-term savings. This is clearly not a rational course of action when at times like the present their money is losing its value in real terms each year.
Most Britons, the research suggests, are essentially very risk-averse. The big unknown is how far this is due to a genuine horror of risk, and how far to an inadequate understanding of the nature of the risk involved in buying shares. The Weinberg committee concludes, reasonably I think, that it is as much the latter as the former. Assessing risk is not one of our strongest cards as a nation. The National Lottery and the BSE crisis have amply demonstrated as much this year.
Of course there is more that the Government could do on the tax front: abolishing capital gains tax is the obvious step towards encouraging more savings and removing one of the worst distortions. But there is also much that the City could do to spread awareness of the different ways in which the risks of equity investment can be managed. The underlying challenge is ultimately a commercial one. People will invest more in shares, as with any other good, if they are persuaded that it is in their interests to do so.
What confuses the issue in most of the debate is the distinction between buying individual shares and buying a collective investment such as a unit trust or investment trust. For many investors, a fund managed by someone else is the best way to invest in the market. It gives them the benefit of diversification and the chance to delegate the management of their money to someone whose full-time job it is. The main problems are how to pick the right fund for their needs, and how to avoid paying too much in charges.
The issue of whether people should pick their own shares and handle their own portfolios is a quite distinct one. I share, with many professional investors, the view that there is no reason why individual investors should not produce better results than most so-called professionals. Private investors of this kind have many inherent advantages.
They do not have to pay their own management fees and overheads. They can afford to take a long-term view, and to sit out the market if they wish. And so on. But individuals are only likely to be able to profit from these advantages it they are prepared to put some time and effort into handling their investments - and not all of us are able or willing to do so.Reuse content