An Irish Times guide to the world of personal finance - this week Amateur investments.
Amateur investor
I live and work in a third world country and only come home on holidays every three years. I am an amateur investor and, when overseas, do not keep in touch with world or Irish markets. On my last holiday, three years ago, I bought a thousand shares of Iona (for our retirement and to help with our grandchildren's education in the long term) with very high recommendation from friends and two separate well-known Irish stockbroking firms. At the time, we bought the shares at a cost of approximately $70 each on the Nasdaq. They had reached $100 per share previously and the advice was to buy on this dip.
On this visit, I see they are worth only $1-$2 each. Whatever happened? Should we sell our Iona stock now, take our losses and put it behind us? Would you agree that such collapses could happen to any Irish company, even banks and so-called blue-chip organisations?
Mr J.H., Dublin
I don't wish to be unkind but the notion of buying growth stocks - such as those in a technology company at the height of a technology bubble - and then heading off for three years without a backward glance at the progress or otherwise is one of the best arguments against the notion of "amateur investment", as you put it. However, worse than that, the idea that friends - and, more particularly, professionals in the stockbroking industry - would recommend shares in such a company to people who were not in a position to monitor performance for a full three years beggars belief. The professionals, if they were briefed on the sort of three-year passive investment plan you had in mind, should be thrown out of their jobs and barred from giving advice on such matters in the future.
I don't know whether Iona is your only shareholding or not but shares in volatile markets, such as Iona and the tech sector at the time definitely were, should only be bought as part of a balanced portfolio and less so by people nearing retirement and therefore less able to recover from the sort of collapse in asset value that has undermined your investment.
Back in 1999, the computer bubble had yet to burst and I can see why brokers and others might have thought that Iona, having shed 30 per cent of its value, might bounce. The mood at the time was that technology was king and, despite the foundations of sand, the longest-running bull market in living memory encouraged people to believe that every blip would be followed by resumed growth in share price.
What has happened? Quite simply, Iona has suffered along with the rest of the technology sector. In many ways, it has outperformed its peers. It, at least, is still around. It would be a very bullish analyst who would suggest a return to the levels at which you bought; on the other hand, it has fallen from a high of $27 in the last year in a market which has been in sharp decline.
The best I can tell you is that analysts seem to be sharply divided on its future. Of the 10 current recommendations for the stock, two say sell, three say hold and the remaining five support a "buy" in one form or another. These should be judged on the understanding that analysts are still seen as remarkably reluctant to issue a sell rating.
In theory, such collapses could happen to any company. After all, look at Enron, Marconi or even Elan. That's why stock market investments always involve risk. However, they are rare among established groups and some companies are more secure than others. But even this week a blue-chip like CRH gave up 15 per cent in one day due to the prospect of exposure to litigation over asbestosis claims in the US.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice.
