As many as one in five Irish people may hold shares in public companies and that figure should climb as disposable income grows, privatisations increase and consumers gain greater control over their retirement funds.
The percentage of Irish share owners is rapidly closing on that in Britain where 25 per cent of adults hold shares directly, following a long campaign to persuade them to invest in privatised firms.
A publicity blitz before the Eircom flotation in July resulted in more than half a million consumers buying shares, many for the first time. But even before that, the numbers investing directly in the stock market had been rising rapidly.
In a report published in June, Goodbody Stockbrokers estimated there were 380,000 private shareholders in Ireland, representing 13 per cent of adults. Shareholders had almost quadrupled since 1991, with most of the increase occurring in the last three years.
Following the Eircom flotation, this figure rose to a little more than 20 per cent, says Peter Connor, chief operating officer at Goodbody. "We're definitely on a progression where people are using stocks more frequently to achieve medium to long-term investment goals."
The Eircom share price dip and that of the stock market generally are unlikely to have any long-term effect on growth in share ownership, brokers say.
"Eircom has given people an insight into the risks of the market without being disastrous," says John Keilthy, head of the private client division at NCB Stockbrokers.
Several factors have driven the growth in share ownership, chiefly more disposable income, and inherited wealth resulting from escalating property prices. "What has accelerated it has been the wealth factor," says John Maguire, a partner in the private client division at Bloxham Stockbrokers.
Demutualisation of building societies and insurance companies, the increasing use of employee share ownership schemes and a low interest rate environment have also been factors.
But although share ownership has increased, share trading has not. Only 9 per cent of shareholders invest in more than five companies, portfolio values are low and few shareholders are active traders, with only 5 per cent dealing every three months or more frequently, says Goodbody.
This is expected to change as the shareholder base grows and as people become more actively involved in managing their savings. Online trading - in which investors can electronically gather information on companies, place buyand-sell orders and receive immediate confirmation of the trade - is likely to spur activity.
Online trading only began in the US in 1997 but is already estimated to account for about one-third of all trades. Commissions and fees are far below those charged by full-service brokers and this has encouraged investors to trade more frequently and to trade smaller amounts. In the UK, electronic dealing is expected to account for one trade in five by next March, according to the Association of Private Client Investment Managers and Stockbrokers.
At home, the Irish Stock Exchange could introduce electronic dealing next year and stockbrokers are already gearing up. NCB has been a pioneer in providing Internet-based services - primarily access to share prices, company research and general market information - and plans to provide a full electronic dealing service to clients. The broker is also developing technology to execute deals over mobile phones.
While the Internet will revolutionise online trading, stockbrokers insist there will still be a demand for traditional full-service advice. They also caution strongly against the ultimate in active private investing, day-trading - hugely popular in the US due to a widespread belief that is where fortunes can be made.
Day-traders buy and sell several times a day to profit from small fluctuations in stock prices. It is regarded as a high-risk activity and a recent report by the North American Securities Association claimed that as many as 70 per cent of day traders lose money. "All they're doing is betting on the volatility of a stock," says Mr O'Connor.
Such trading seems unlikely to catch on in Ireland where most shareholders are passive investors, content to let the shares they acquired in demutualisations and from employers grow. But stockbrokers expect those keen to build an active portfolio of investments to meet their long-term needs, will grow.
"There will be a significant increase in the level of activity of shares, ownership will penetrate large categories of the community and the objective would be medium to long-term wealth creation," says Mr Connor. "But it's not like you have shares to the exclusion of any other investment. The ultimate objective, and what we would stress to clients, is the need for a balanced portfolio that takes into account all your needs."
