Q&A Dominic Coyle

The Irish Times guide to the world of Personal Finance, this week, falling share prices   and small investing

Tanking shares

My wife and I are proud owners of such gems as Tyco, AOL Time Warner and Cable & Wireless, all bought on our behalf last year by our stockbroker, who managed our portfolio for a fee. While we must put up with the major losses we have sustained from our broker backing such spectacular wrong horses, it is hard being sold a pup in Tyco, which lied about its performance.

Is the reason this company and its auditors are not being sued by institutional investors because such action would reduce the value of its shares even further? Our broker has now advised us to sell these three shares - what do you think?

Mr D.L., e-mail

The first thing I think is that you appear to have lost faith in your stockbroker. It is fairly serious when, rather than trust the people whom you are paying to manage your finances, you turn to someone who, at best, will have only a superficial knowledge.

If this is truly the case, notwithstanding whether your broker was right or wrong in its original advice, I would suggest you get yourself a new stockbroker. Your current broker would be the first to admit it cannot expect to operate a fruitful relationship with a customer who no longer trusts its judgment.

Turning to the more substantive issue, you are, as you say, stuck with some real gems.

However, hindsight is 20:20 vision and your broker would by no means have been alone last year in assuming that some of the telecoms and media stocks had been grossly oversold and were due a bounce. They were wrong but they were not alone in being so. In fact, the market consensus early last year was that markets would stage a recovery in the second half.

If your broker bought into telecoms and media issues on your behalf last year, I have to assume that the firm had agreed an aggressive strategy with you because the sort of shares you refer to would by no means be described as defensive.

I would find it incredible if your broker had not agreed such a strategy prior to buying on your behalf but if you believe it did, you might have a case.

I would only caution that, for some reason, people tend to remember only the upside and not the risks outlined to them when inquiring into investment opportunities. Whatever your broker did before embarking on acquiring shares on your behalf will, I have no doubt, be stored in writing somewhere.

As for Tyco, it is hard to blame your broker on one hand only to acknowledge later that the company had lied to all and sundry - including analysts and brokers - about the true extent of its plight.

On the subject of suing, you will find it a rarity for institutions to sue companies in such circumstances. Most such cases are class actions filed on behalf of a group of smaller retail shareholders. Institutions have discovered that suing is expensive and by no means certain of yielding a sought-after result. Most tend to write off such poor investments and put it down to experience.

Should you sell? Given your stated views, I am pretty sure you should never have been in the shares in the first place and, therefore, you probably should sell and close this sorry chapter.

Having said that, these companies have tanked so badly, it seems unlikely that there can be much downside left in the price. Mind you, that is what people thought a year ago.

If you sell now, you are crystallising your losses with no way back - at least as far as these shares are concerned.

Only you can ultimately make the decision and that will depend on the size of your investment in these companies vis-à-vis your overall portfolio, whether you can withstand crystallising such losses and your attitude to risk strategy, which may well have changed as a result of your experience in the past year. I certainly would not bank on getting anything back down the legal route - whether against Tyco or anyone else.

Share trading

If I wanted to buy a relatively small amount of shares, where and what would be the most cost-efficient way of going about it? For example, if I wanted to buy €500 worth of Waterford Wedgwood shares, what would be the best way to do it?

Mr S.F., e-mail

The cheapest way of buying shares depends on the type of investor you are.

However, I am going to assume you are a once-off investor looking to buy shares in a specific company.

In such circumstance, the most cost-effective approach is probably to go through one of the brokers listed on the Irish Stock Exchange on an "execution-only" basis. That basically means that you are asking the broker to buy shares determined by you at the best price he or she can get. The broker would give no advice and would not allow price limits to be imposed.

Assuming you know exactly what you want, this is the best way to proceed but, before you rush off, I suggest you read the first answer in today's column. Investors do not always have possession of all the facts surrounding a particular company and that is what you are paying the company for. There is still no guarantee that the shares will move in the right direction but at least you will have the fullest knowledge available.

If you go execution only in today's volatile market, you would want to be sure of what you are doing.

Waterford Wedgwood, for instance, is a share whose short- and medium-term future may be affected by a whole range of factors from war and the state of the global economy to its allure as a takeover target either for some existing investors, a trade buyer or someone else.

If you do want to proceed, I would ring around the brokers to see who offers the most competitive price. They do differ and there can sometimes be particular value among smaller brokers.

One last thing, and this is a personal foible. Unless you have very good reasons, I would avoid holding shares electronically in a nominee account. As Morrogh customers discovered, this can hide a multitude of sins. Hold your shares either through a safely stored paper share certificate or through a CREST account, where you have far more control than you do with nominee accounts.

If, on the other hand, you are a regular investor, it might well be that you would be better off buying shares online but the same health warnings apply.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or email dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.