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For all the variety of their methods, private investors have many common guidelines. For example, many small investors avoid buying individual foreign stocks, since they may have trouble getting timely information about the securities. Small-time investors generally shun stock options, futures and other risky instruments unless they have carefully constructed a way to use them as a hedge against losses in their common-stock portfolio. Finally, they frequently establish predetermined selling points at which they will dump a stock to cut their losses or capture their gains. Says Melissa Lamb, 28, a Manhattan real-estate broker who is learning the hard way: "I have picked some good ones, but I just wait and wait in the hope of a bigger profit, until all the profit evaporates."
The desire of so many investors to make their own decisions has become a boon for discount stock brokerages. These firms charge smaller commissions than full-service investment firms because, unlike the traditional houses, the discounters provide no advice or portfolio management. For example, on a sale of 100 shares of a $60 stock, a discounter's commission would be about $50, in contrast to nearly $100 at a full-service brokerage. As a result, the percentage of retail stock transactions placed with discounters has increased from 8% in 1982 to an estimated 22% this year. Most successful is San Francisco-based Charles Schwab, the largest U.S. discounter, whose revenues have gone up from $42.7 million in 1981 to $308.3 million in 1986. Schwab notes that the typical size of the accounts held by its 1.5 million customers is between $50,000 and $100,000.
Both discounters and full-service brokerages have produced a wealth of tools to help individual investors keep up with the technical capabilities of the professionals. Schwab sells its customers a personal-computer program called The Equalizer (price: $99.95), which enables an investor to keep track of a portfolio, place an order and call up stock-price quotes, research reports and financial news. Telemet America, one of the several firms offering hand-held devices for monitoring stock quotes, now serves 16 cities and 10,000 customers, 90% of whom are private investors.
For those who want to play the market but lack the time or inclination to gamble on specific stocks, mutual funds have been the answer. Stock funds grew by $41.7 billion during 1986, a 33.4% increase, to reach total assets of $166.4 billion. But the number of stock funds, now in the hundreds, has mushroomed so fast that selecting one can be almost as tricky as picking individual issues. Even so, it is hard to go wrong in such a strong bull market. During the first half of the year, the average stock fund rose some 22%.
All told, the growth of individual participation in the market should come as a welcome trend for corporate America. The tendency of private investors to put their money on the line for relatively long periods of time is a desirable counterweight to the fickleness of Wall Street money managers, whose what- have-you-done-for-me-lately attitude has long bedeviled corporate managers. Average investors tend to be more patient in waiting for results. Fortunately, their patience is not exactly being put to a test these days.
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CREDIT: TIME Chart by Cynthia Davis
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