NEWS
COLUMNISTS
STOCKS
MUTUAL FUNDS
TAX
INTERVIEW
REAL ESTATE
GOLD
CURRENCY

The Man in Wall Street

Who are these people driving the US stock market sky-high? My impression is that the big investors on US stock exchanges are fellows who carry the financial reports of companies in which they trade in their brief cases. They probably subscribe to expensive finance magazines like Risk or International Financing Review.

They have complex derivative formulae stored in their laptops if not in their heads. Their PCs are loaded with statistics on all the companies listed on New York Stock Exchange and NASDAQ. They constantly monitor stock markets around the world. With the click of a mouse they may get professional predictions on the future earnings of the companies they may be interested in. They create the complex world of international finance with its numerous instruments and then make tons of money from it.

But my personal impressions on this matter, however, are of little value. As experts would point out, if the market did not find these instruments efficient, and worthwhile, it would have discarded them long ago. Similarly, when the market does not like a big investor it punishes the fellow ruthlessly.

So let me create the real profile of a typical investor on Wall Street from the results of a recent survey.

A typical stockholder in the US is 47-years old, says a recent survey by the Investment Company Institute and the Securities Industries Association. Note: It is not the young Internet generation that is bullying the NASDAQ or NYSE. Over a third of the investors are older than 55 years.

Our average Wall Street investor lives in a household with an annual income of $60,000 and has total assets worth $85,000. Below average investors also have a place on Wall Street. Investors with less than $50,000 annual income have stock holdings worth $20,000. The median stock holding of investors with more than $150,000 annual income is $150,000.

Not all of them have been active in the bull market. Contrary to what experts have been saying, the average investor is not around to make quick buck. Most people have investments for the long-term. The survey finds that 55 per cent of all investors did not do any trading at all. Among those who traded, two-third bought and only one-third sold stocks.

Also, contrary to what analysts have been saying, most of these investors have been trading very cautiously. It seems they have taken one of the first principles of stock investing - diversification - to their heart. Most of the stock investors have multiple accounts. 22 per cent of the people with mutual fund stocks own stocks in seven or more funds. Another 26 per cent own four to six funds. Only 19 per cent of the investors own just one fund.

Most of the investors have had years of experience in the stock market. More than half of the investors bought their first shares in the 1980s. Another 28 per cent bought their first stocks in the first half of the present decade. Only 18 per cent first entered the market in the past five years.

For those who think money has no colour, cast or creed, especially on Wall Street, this survey springs a big surprise. Ninety per cent of the stock investors in the US are white. Only five per cent of the people who hold stocks are black.

Almost half the American households - 78.7 million -- own stocks. But only 11 per cent of them trade over the Internet. As expected, traders over the Internet are on average younger, richer and have higher stock holdings than other investors. They have also been ten times more active than the average off-line investor has. That may be the reason why stock traders in the US have so much confidence in the Internet related stocks.

Many stocks, which may otherwise appear unrelated to technology stocks, also have strong ties on the web. For instance, last week's most successful IPOs (Initial Public Offer) - Martha Stewart Living Omnimedia Inc. and World Wrestling Federation Entertainment Inc.'s -- have prominent web-sites. Marthastewart.com already has 925,000 registered users. Internet and direct-commerce are the fastest-growing sales area in the company.

So when analysts' say that the successes of these two IPOs suggest that investors are hungry for non-internet stocks, you know they are not telling the whole truth.

(Neeraj Kaushal is a financial journalist who lives in New York and is a former senior editor of The Economic Times)

Neeraj Kaushal

Tell us what you think of this column