ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, January 10, 1997 TAG: 9701100063
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
DATELINE: NEW YORK
TYPE: ANALYSIS
SOURCE: JOHN CUNNIFF ASSOCIATED PRESS
THE SMALL INVESTOR has been trained to believe investing is best left to ``experts.'' That is not entirely true.
The return on large-company stocks since 1925 has been at an average rate of 10.5 percent, or more than double the average annual yield of 5.2 percent on long-term government bonds.
Stated in dollar terms, an investment of $10,000 in government bonds at the end of 1925 would have grown to $340,440 by 1995, vs. $11,139,180 for a similar investment in big-name corporate stocks.
Such figures explain the popularity of trying to save Social Security from bankruptcy - a fate decreed by the low return on government bonds and the rising demand for benefits - by investing some funds in common stocks.
Wall Street, of course, is salivating over the prospects, since there are few ways in which to invest in stocks without paying a brokerage fee of some sort. Stocks are a retailed product, with the usual retail markup.
In recent years, the popular conduit for transferring small-investor money into the market has been mutual funds, of which more exist now than there were companies on the major stock exchanges a decade or so ago.
The rationale for their existence is that they provide professional management for the small investor and they offer diversification, and the security that results from it.
There is still another reason, though nobody likes to talk about it: The small investor has been trained to believe investing is beyond the abilities of most individuals, and that it is best left to ``experts.''
How good are the experts?
Not very. There are those who excel, as you would expect, but the typical mutual fund hardly even matches the popular averages. Many never achieve that level. Some are consistent losers.
Even those that succeed in seeming to work wonders for their customers must be measured against those amazing averages that turn $10,000 into more than $10 million in 65 years. The market itself can make them look good.
Without denying the smartest of portfolio managers their due, it can be conceded that the greatest wonder of all is the stock market itself, and its underlying economy, rather than its experts.
In fact, expertise is defined in the securities field more by sales and marketing than accomplishments. Nobody, for example, refers to amateur investing club members as experts, but scores of them outperform the experts.
Figures maintained by the National Association of Investors Corp. show this to be so, year after year. Some clubs have maintained double-digit growth rates for decades, making their $20-a-month contributors wealthy.
Why, then, the popular belief that individuals cannot survive in the marketplace?
For one, many of them can't. They don't put in the effort to learn about companies. They haven't got the money to diversify. They buy and sell at the wrong time. They submit to advisers claiming superior knowledge.
But millions of small investors know what they're doing, are willing to keep abreast of market conditions, have access to enormous amounts of data in print and on line, and are capable of outperforming the experts.
Moreover, they have an option that most experts can't claim, that being the opportunity to buy direct from corporations without going through a broker and without paying the usual retail commissions.
The medium for doing so is the dividend reinvestment plan, or DRIP, in which shares can be purchased through the mail, sometimes at a discount from the market price and usually with a greatly reduced or no commission.
Evergreen Enterprises, of Laurel, Md., offers a comprehensive directory of such companies, as does Standard & Poor's. And the National Association of Investors Corp., Madison Heights, Mich., offers an easy-entry DRIP program.
LENGTH: Medium: 72 linesby CNB