Investors are often thought of as savvy individuals with an eye for the markets and an unswerving ability to know when to buy and sell.
The reality is nearly one in five investors have never checked the financial performance of the companies they hold stocks and shares in, according to new research.
Even worse, only 44% of ISA stocks and shares investors look to see how their money is progressing and even investors who have bothered to diversify their portfolios are unaware of how the markets are performing , which leaves them exposed to unexpected events.
The results come from a study of more than 1,500 experienced investors by The Share Centre.
The theme of the report found around 40% of investors prefer to pick specific stocks rather than spread their risk by putting money into a fund and few carried out in-depth research when choosing their investments.
Lack of research is a weakness
The survey revealed:
- 19% of investors never look at how the companies they invest in perform
- 4% select stocks and shares on the reputation of companies rather than their financial results
- 30% of investors with stocks and shares ISAs follow the results of companies they invest in online or in newspapers
- 14% read company financial results directly on reports or from their web sites
The firm’s Helal Miah, an investment research analyst, explained that lack of research is one of the weak points of many investors.
The average investor spoken to by researchers had a portfolio of 13 stocks, but they did not know enough about the companies to answer questions about their financial performance. As a result, they had not seen profit warnings, drops in dividend payments or poor prospects in some markets.
Understanding the markets
As an example, Miah commented that although the FTSE350 firms saw net profits gain by 52% in the last three months of 2013, although the market performed well, individual sectors did not – profits for food and drug retailers slumped 39%, while mining and software companies fell back.
“Share prices are based on their ability to deliver earnings and paying a dividend or capital return to the investor,” said Miah.
“If investors do not understand how the market works and how to pick shares from reading company returns and statements, they will have a problem in selecting the right companies to invest in.
“Not everyone can read financial statements and pick out the right messages. The media can help by summarising this for them.”