Share boom sparks fears of soaring debt


C

Crowley

I remember some of this "buying shares with credit" madness happening
in the late-nineties. Though I think the bull-run in equities still has
further to go, buying them with credit seems a gamble too far
IMO..............


Share boom sparks fears of soaring debt
By John Greenwood (Filed: 11/01/2006)


IFAs warn novice investors against taking out personal loans or piling
on credit card debt to gamble on the FTSE bull run

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/01/11/cmnshare11.xml

Soaring share prices are tempting people to remortgage or use credit
cards to invest in the stock market - prompting fears of a return to
the days of the technology boom when thousands of investors had their
fingers burnt.

Financial advisers have been receiving calls over the past few days
from would-be investors wanting to buy unit trusts and shares funded by
credit cards, personal loans and equity in their homes. The advisers
said the inquiries had come mainly from novice investors showing an
interest because the FTSE100 index has climbed by more than 70 per cent
over the past three years. Last week it rose above 5,700 - its highest
level for five years.

They fear a re-run of the late 1990s when investors rushed to use
credit to buy shares and equity funds to cash in on soaring technology
share prices. When the tech bubble burst in March 2000, thousands of
investors were left nursing big losses. Those who borrowed on credit
cards or took out loans to invest were left with large debts.

Colin Rothery, the regional manager of Throgmorton Financial Services,
the financial adviser, said in one case he had dissuaded an investor
from borrowing £100,000 on his house to invest in shares.

"This investor is a classic example of someone who jumps on the
bandwagon just as it may be running out of steam," he said. "A year ago
he sold all his equities to get into property, which had been doing
well, and now, having missed out on last year's surge in prices, wants
to buy back in again at what may be the top of the market."

IFAs warn would-be investors not to take on debt to gamble on whether
the bull run will continue. Equities would need to continue performing
better, net of charges, than the interest on the loan year in, year out
to make the high-risk strategy worthwhile, warn advisers.

Philippa Gee, the investment director of Torquil Clark, said she had
been forced to warn clients against using cheques sent out by credit
card companies offering 0 per cent introductory offers to buy equity
Isas. "We are seeing an increase in novice investors in their 20s and
30s asking whether they should use their plastic to get into equities.

"This is a rerun of what happened towards the end of the tech boom. Our
advice is to steer clear from this as equity markets are notoriously
volatile and customers could see themselves in negative equity and
paying spiralling interest if things go wrong."

Last week the Investment Management Association said it expected sales
of mutual funds to private investors to top the £10 billion mark by
April, the highest figure since markets peaked in 1999-2000.

But opinion on whether stock markets will continue their rise this year
is divided. Royal Bank of Scotland reckons that the FTSE100 will end
the year at 5,600, while ABN Amro said it would end the year at 6,200.
 
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S

Sam Smith

What is this - doom-monger central?

Do you really think that the cash-strapped public - high in debt is really
going to pile on more debt to invest in the latest stock options? Maybe (and
I do mean 'maybe') in the US - but not in UK.
 
J

Janet Stone

I remember some of this "buying shares with credit" madness happening
in the late-nineties. Though I think the bull-run in equities still has
further to go, buying them with credit seems a gamble too far
IMO..............


Amateurs. Why buy shares on credit when its easier to trade on a margin.
Now if they used their credit to margin trade I would be impressed.
 
C

Crowley

Sam said:
What is this - doom-monger central?
No, reality.
Do you really think that the cash-strapped public - high in debt is really
going to pile on more debt to invest in the latest stock options? Maybe (and
I do mean 'maybe') in the US - but not in UK.
The article is referring to the UK.

BTW its not the first time. Punters were buying equities with plastic
at the height of the tech boom.
 
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S

Sam Smith

Crowley said:
BTW its not the first time. Punters were buying equities with plastic
at the height of the tech boom.
Well okay we'll have to see - I would think it would be limited compared to
last time as the public is already heavily in debt.
 

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