In the City
Advising investors
Tony Rudd
One of the complaints most frequently made about stock markets by those who have to use them is that they are so neurotic and, therefore, haphazard in their movements. Prices jump about in exaggerated response to events of minimal importance. That is the charge. Of course it is unfair in that, quite simply, the markets as such don't do anything; the price changes are purely the reaction of those who deal. When investors complain about the markets they might as well look in the mirror and berate themselves. On the other hand there are categories of people whose object in life is to influence market opinion, and it may from time to time be said of them that their activities do encourage volatility.
Take for instance what happened last week in Wall Street. One of the leading investment counsellors, a certain Mr Granville of Florida, sent out a 'sell signal' by telex to his subscribers. The news was so electrifying that the greatest capital market in the world opened over 20 points down in an immediate response to this bearish news. It has been unsettled since. This reaction is part of a self-feeding mechanism. The argument in the letter apparently was that the behaviour of Wall Street over the past few months, its failure to penetrate higher ground, the evidence of a gradual dispersal Of interest, presaged a substantial decline. The immediate selling was probably not because the professionals, weighing up the Pros and cons of this view, were impressed by it but because they knew that a sufficient number of other investors would take fright; they dealt on what they expected Other people to do when they heard the news.
In other words Mr Granville worked on the market's expectations and he had a visible impact. Furthermore it may be noted that the impact was substantially greater than that shown up by the decline in the indices; the demand for more speculative Issues dried up completely and anyone trying to dump them after Wednesday of last week was in real trouble.
London probably isn't so vulnerable to this kind of thing. To begin with, what the Americans call the investment counsellor (Who has to be registered under the Securities and Exchange Commission Rules) doesn't play anything like as important a tole in the United Kingdom as he does in the US. Most investors here either make up their own minds or get their advice from their banks, stockbrokers or accountants. Alternatively, they give the job over to a Professional and leave him to do the tna.nagement. This often amounts to buying nit trusts or some other kind of managed tund. On the other hand there are a number of quite influential independent advisory services on offer.
The oldest is that of Investment Research of Cambridge which was founded by the doyen of the Corps, Alec Ellinger, immediately after the war. Now under the guidance of John Cuningham and his team, this is essentially a chartist (or, in the jargon, a technical) service. They don't look at what people call the fundamentals, that is what happens in companies and in industries, but just at how the share price behaves over a number of years. They are looking essentially at what other people are doing and have done and reacting to that. Then there is Chart Analysis, the service run by the amiable and charming American, David Fuller, whose service covers commodities and the international markets generally. It was his view that all major stock markets in the world had entered a synchronised down turn early in December which, reported by the financial press, led to considerable weakness in the London equity market. Then we have Mr Brian Marber, whose currency and gold services as well as his chart work on bonds and shares are well regarded both for their content and the style of their presentation. Perhaps the best known investment letter which, though it uses technical analysis, is based on a much broader view of the market, is that of the erudite and also American Mr Bob Beckman. For sheer depth and professionalism it is hard to beat and for the true enthusiast it can be really rewarding. Down market from these products there are such publications as the Fleet Street Letter with a remarkably high circulation in five figures and that old stalwart, the Investors Chronicle midweek letter. That about covers the field so far as the UK is concerned.
The question is whether independent advisers are going to get more powerful as they have done in the US. This probably depends upon the way that the organisation of the securities markets in the UK evolves over the next few years. The evolution of the investment counsellor and the tremendous growth in advisory services like that of Mr Granville date from 1975, which is the year when negotiated commissions came to the New York Stock Exchange. This in turn led to what has been called an 'unbundling' of services. Because people could then shop around for what service they wanted at the best price they could find, those providing the services were in most cases forced to specialise (the only exception being Merrill Lynch, which specialised in growing big). Most of the advisory services were started by one-time stockbrokers who had had to leave their former employment because their companies could no longer afford both to sustain the cost of research services and to " compete against cut-price commissions. The only thing which might stop this process developing in the UK is the relative thinness of the London market which has become largely institutionalised', meaning that well over half the turnover is now accounted for by insurance companies, pension funds and the like. Only if the private investor comes back will services like investment counselling have a chance of growing as they have done in the US. Whether that is a good thing or a had thing it is difficult to say. But at least Mr Granville and his like add to the multiplicity of the views on Wall Street and thus to the turnover and the liquidity of that market. Those are both qualities which could with general benefit be enhanced in London.
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