The reputational risk of the stock trade frenzy

LA massive opportunity knocks. And a PR disaster awaits, perhaps.

Since lockdown there has been a flood of new traders chancing their arm on the stock market investing for their long-term future.

AJ Bell said today it reckons there are billions to be made from these new investors. Its own App for the phone-trade crowd is called Dodl, not to be confused with the similarly named dabbl.

Abrdn is buying Interactive Investor on the same logic.

On the face of it, this all sounds good. We have been taught by the stock broking industry that it is plainly in our interests to buy what it is selling.

Historically, for many people, this turns out to be untrue. In the end markets go up, but they can stay down for longer than many of us can stay solvent. In the end, we need the cash and we have to sell no matter what the loss is.

To my mind the broking sector is a bit too casual about chasing this new breed of punter.

They will offer them low-commission execution-only deals, which means when it all goes horribly wrong, the brokers don’t have a legal problem.

Just a reputational one.

After each stock market crash there are a whole bunch of new people who won’t touch shares ever again.

The risk must be that since that are more new investors, there are more who stand to lose nearly everything when it turns out that individual equities are really risky.

Find Out Now did a report on all this a while back. You can read it here.