Join our community of smart investors

Investment’s reputation problem

I do, of course, try to explain that the comparison with an accumulator on a day’s racing at Cheltenham isn’t very accurate at all (the additional irony being that while only a third of Brits own stocks and shares, a higher proportion are more than happy to flutter a few hundred quid on a horse they know nothing about). But explaining that, unlike a bookmaker, markets are a crucial form of financing for thousands of businesses (many of which may not be here had they not been able to raise money last year), and therefore a source of job creation and economic growth, and that participation in that growth is the only way for many to enjoy a less frugal retirement, often seems to fall on deaf ears. And unlike a betting market, the stock market is not a zero-sum game – no one else has to lose for you to win if the companies you back grow. 

My suspicion is that such a view has emerged because most people do not hear very much about the stock markets at all, beyond what is reported by the mainstream media. And that of course means that rather than hearing about the long, slow and arguably rather boring accumulation of wealth over decades, they only hear the stories at the extremes of the market – record highs, record falls, corruption and scandal, how rich Elon Musk is, and other assorted tittle-tattle that isn’t helpful to investors at all. Based on that picture alone – all of which could be easily applied to Tesla’s recent history – markets would indeed seem like a wild west best avoided. 

Of course, 2020 was a year in which many did start to think about investing for the first time, which meant a very good year for brokers of all stripes, financially at least; wild markets and massive demand have revealed a few cracks in many of their infrastructures. Hargreaves Lansdown – the epitome of reliability – has struggled to maintain its famous levels of customer service, commission-free broker RobinHood was forced to raise $3.4bn to stay in business in the wake of the GameStop saga, and IG has, with little warning, moved more than 1,000 instruments to 100 per cent margin, much to the annoyance  of Michael Taylor.

It would be hard to argue with the stock market naysayers that right now, through derivatives and leverage, there is in fact quite a lot of gambling going on in stock markets – thousands of investors’ paper GameStop riches have quickly turned into heavy real losses (as the Mail Online reports in detail of course) as the artificially-inflated value of so-called ‘meme stocks’ crashed back to earth. And there are many other aspects of financial markets that do little to enhance its reputation, from dubious accounting standards to excessive executive pay. But it is important that we do – healthy stock markets are an essential part of a healthy economy; the biggest gamble would be to ignore that.