Direct Stock Market Information
Some need a broker to buy and sell stock, others don't. Some are convinced that brokers put a necessary brake on our baser instincts when playing the market. Others love the idea of buying and selling without brokers and their often high fees. This is called "direct stock" buying. "Direct stock" is another term for "no-load" purchasing. The term "load" refers to the fees that brokers charge both when they buy and sell stock.
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History
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Brokers have long been considered necessary for most investors, especially small and novice investors. The 1990s were a massive boom decade in the stock market, and everyone and anyone was seen playing the market. People, many doing quite well in the 1990s, wanted to keep more of their stock earnings by eliminating brokers as middlemen and taking charge of their own investments. The crashes of 2000 and 2002 took the wind out of the sails of these rogue investors, and brokers benefited. As of 2010, there are fewer no-load funds out there than there were in 1995, but the field still exists.
Features
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"No load" or "direct" stock purchases mean that an investor can contact the company they want to invest in and buy stock from them. This means that the investor is in charge and the broker is bypassed. "Business Week," back in the heyday of the "no-loads" in the 1990s, reported that while many direct purchases do come with a small one-time fee, it is tiny in comparison to the average broker's fee.
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Benefits
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The investor, buying direct from the firm, pockets all earnings with no large brokerage fees. This is the main benefit. At the same time, direct purchasing has another meaning: outside stock investors --- that is, non-employees --- can now take advantage of dividend reinvestment plans that at one time were for employees or longtime stockholders only. This means that outside investors can sign up for plans where dividends are automatically wired to buy more stock from the firm. All of this is done without any broker.
Effects
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The stock crashes of the first decade of the 2000s harmed, but did not destroy, the "no-loads." "USA Today" finance writer John Waggoner says that these crashes "shook the confidence of a generation of self-directed investors." "No-loads" advertised heavily as average gains soared in the 1990s, bringing newer and more novice investors into the field. They were wiped out in embarrassing numbers as the new decade dawned.
Problems
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Self-directed investors lack the speed in buying and selling that self-directed investors have against brokerage houses. They respond to the market more slowly than the brokers, since the latter have greater resources and market access. In addition, broker advice can be useful when coming from an experienced market watcher. Real self-directed investors better know their stuff and they have no one else to blame.
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