Why the City Slickers are not so slick
Nobody in the City even reads the Mirror. So how could it move shares?
In the City, the details of the case are hardly the point. The editor of the Mirror, Piers Morgan, spent £20,000 on Viglen shares the day before his "City Slickers", James Hipwell and Anil Bhoyrul, tipped the company in their column. Three weeks later, Morgan sold his holding at a profit of £13,000 triggering inquiries from the Stock Exchange, the Department of Trade and Industry and the Press Complaints Commission. Morgan will be found guilty of naivety, stupidity or impropriety. In the City, it is more important to counter the shibboleth that anyone at all reads the Mirror.
In all my time in the City, I only ever saw the City Slickers page once and that was in the barber's while I was waiting for a haircut. The economists would spend hours agonising over the gnomic witness of Alan Greenspan's Humphrey Hawkins testimony. If George Soros or Warren Buffett so much as went shopping, the market would react. Over the years, their ability to be right six times out of ten had earned them the power of self-fulfilling prophecy. Of late, a stray remark from Willem Buiter or Mervyn King might set off a chain reaction through the banks, insurance and property sectors. But I do not recall anyone ever running on to the trading floor clutching a copy of the Mirror.
Like dress and facial hair, reading habits in the City divide neatly along class lines. For the haute bourgeoisie, for the fund managers, corporate financiers and stockbrokers, the newspapers of choice, apart from the obligatory Financial Times, are the Telegraph and a publication that everyone calls the "White Times". (As nobody ever calls the Financial Times the "Pink Times" or indeed anything other than the FT, this is a strangely redundant observation of the colour of paper.) The Guardian is evidence of communism, but it is at least a broadsheet. In fact, I once worked at a bank whose corporate logo was a red top. We called the notes we produced red-tops. There was general astonishment when someone pointed out that we were describing ourselves as tabloid.
Down on the desks, the traders and the market-makers may read the tabloids. But the notion that they read them for the City pages rather than the football is fanciful. The market does not need any more rumour from journalists who wear the sort of braces that people who have never worked in the City think that people who work in the City wear. There is already an excess of rumour on a trading floor first thing in the morning. Often, apart from bacon sandwiches, that is all there is. Most of it turns out to be unfounded, but that doesn't really matter. The truth comes out soon enough and, as long as nobody has privileged information, it lubricates the wheels of trade.
And this is really the rub with the Morgan case. Did he know something? If it can be proved that Morgan took sensitive information, which he knew would move the price, from someone directly connected with the company, then he is in trouble. But this looks unlikely. This is probably a case for the Press Complaints Commission, not the Financial Services Authority.
None of this means that the regulatory authorities will be keeping a less than watchful eye on the tabloid tipsters. The City Slickers case has also aroused a great deal of excited coverage about the growth in online trading. And it is remarkable, to be sure. The number of shares bought by private individuals has doubled over the past three months. There are now 400,000 share clubs in the UK; 685 new online accounts are established every day. The information sources are proliferating out of control on Internet bulletin boards. If this growth continues, then the ability of the City Slickers of this world to move the market will grow.
But this is not yet true. Private individuals own only 20 per cent of listed equity and most of those are still blue-blooded enough not to have heard of the Mirror, never mind read it. Indeed, a recent survey discovered that the archetypal online investor was a 37-year-old man from Fulham. As every second person in the City is a 37-year-old man from Fulham, this rather suggests that what stockbrokers like to do in their own time is to carry on being stockbrokers.
For the genuinely new investor, it must be tempting to suppose that the City Slickers have found the secret. They claim that their tips have returned 154 per cent over the past year and imply that this proves their genius at bucking the market. In fact, good luck like this is a clear signal that one should never read them again, if one ever did. It is an investment cliche that, as soon as you are certain how the market works, you have hubris written all over your face.
The genuine reason that Viglen rose so precipitately has nothing to do with the recommendation of the egregious City Slickers. They were not the only tipsters to point to the company in the week of Morgan's transaction. And neither does it have much to do with the surge in online trading. Viglen shot up because it is a technology company and at the moment this is gold dust. Last week, Oxygen Holdings, aptly named because all it has is publicity, rose 2,800 per cent because it has some flimsy connection or other with the Internet.
We are experiencing the latter stages of the long bull market. Technology is treated as though it were a series of bridges from this world to a promised land. Most of the new companies, however, will turn out to be piers; and piers, as James Joyce pointed out, are just disappointed bridges.
The writer, a former City investment strategist, launches the Social Market Foundation's Centre for the Open Society on 15 February