View from City Road: Good intentions, doubtful results

SIR Peter Thompson, chairman of Proshare, the body that is trying to promote wider share ownership, thinks that many small investors holding shares will increase liquidity in the stock market. Like most of the ideas of the Proshare Association, which was launched yesterday, this is laudable in intention but does not translate well into reality.

For pounds 30 a year, a small investor joining the Proshare Association receives a newsletter, a guide to investment in instalments (rather like those DIY or cookbook series where you risk missing the crucial volume seven) and an invitation to a 30-minute session with a stockbroker, who will advise the member on the best way to invest his or her money. One might surmise that most stockbrokers will advise the investor to buy shares, though Proshare claims this will not always be the case.

Proshare recommends that investors spread their risks through portfolios of shares. But Sir Peter's example, given at the launch, of someone investing pounds 2,000 in eight or nine shares ignores the fact that this person will lose nearly a tenth of that money in dealing charges before he or she starts. Given the high cost of dealing, Proshare's advocacy of investing relatively small sums in individual stocks, as opposed to collective investments like unit or investment trusts, is ill-conceived.

Geoffrey Maddrell, Proshare's chief executive, says investors should hold for the long term - he suggests 10 or 20 years. But even if all the 100,000 investors Proshare expects to attract buy 10 shares each and hold them for 10 years, it will not affect liquidity in small stocks by a significant amount. More thought needed, alas, Sir Peter.