From: davida@Bonnie.ICS.UCI.EDU (David Andersen)
Subject: Article from LA Times on Direct Investing (10/4/92)
Newsgroups: misc.invest
Date: 7 Oct 92 16:46:30 GMT


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THE PROS AND CONS OF DIRECT INVESTING
Kathy M. Kristof
Los Angeles Times, 10/4/92, Business Section

Les Barnes is a die-hard do-it-himselfer.  the Akron, Ohio, resident has
done everything from building his own race cars to remodeling his own home.

And when it comes to investing in company stocks, Barnes does it himself too.

Barnes is part of a growing movement toward direct investing.  Buying through
"direct-purchase plans" is similar to buying clothing from the factory.
The consumer goes straight to the the firm that sells the product--in this
case, company shares-- and buys wholesale.  It takes a little more time and
effort, but ultimately, consumers save thousands of dollars by cutting out
the middleman.

Already, the national Assn. of Investors Corp. says that 100,000 of its
members buy stock through these plans.  And more companies and consumers
are warming to the concept each day, said Tom O'Hara, chairman of the NAIC's
board of trustees.

There are about 900 companies now offering direct-purchase plans, said Dave
Blackmon, editor of Direct-Purchase/Dividend-Reinvestment News in Etiwanda,
Calif.  Although that's only a fraction of the companies listed on major
U.S. exchanges, the participating firms include many household names such
as Kellogg Co., Kmart, McDonald's, J.P. Morgan, Honeywell, and Philip Morris.

The biggest advantage of direct purchase is that it's cheaper.  Instead of
paying a stock broker between $25 and $150 for each trade, those who buy
through direct-purchase plans usually have no brokerage charges once they've
gotten their accounts set up.  Their only cost is the price of the company's
stock.

Some companies do charge trading fees when the investor sells stock.  But
even these fees are modest, typically topping out at $3 or $4 per sale,
O'Hara said.

The disadvantages of direct purchase boil down to two basic problems:
Investors get no advice, so they must have the ability to research and
evaluate whether a company's shares are a good deal or not.  And buying
direct is not as quick and simple as making a phone call to your broker.

It's generally a two-step process.

Most companies require consumers to have at least one share of their stock
before they can buy direct.  That first share can be purchased either
through a broker or through one of several organizations that facilitate
direct-purchase plans.

The most economical of the options is to go through the National Assn. of
Investors Corp.,  which charges a one-time $32 fee to join, plus a $5
transaction fee for each company the investor buys a share in.  The $5 fee
stays the same whether the investor buys one share or 100 through the NAIC.

The transaction fee essentially just pays the cost of having the NAIC
prepare and mail the plethora of letters required to get a customer's
account set up with the participating company.  The NAIC then forwards
the company's direct-purchase prospectus to the investor with the investor's
account number.

After that, investors deal with the company directly.  The rules of each
company's plan, as well as who to contact to invest, are spelled out in the
prospectus.  Those rules include how much must be invested at one time---
company's typically require investments of at least $10 to $25---and whether
or not there will be any trading fees.

The company prospectus will also delineate when the company trades stock for
direct-purchase investors.  Usually, this is only once or twice a month--
perhaps on the 15th and 30th.  A few firms handle direct-purchase
transactions just once every three months.

In most cases, investors who want to purchase shares must deliver a check
to the company's direct-purchase representative a few days before the stock
is actually bought.

Essentially, that means that investors who go this route must plan to hang
in for the long haul, because they usually won't have the ability to trade
in and out of stocks when prices suddenly surge or dip.

Although direct-purchase investors do have to abide by the company's minimum
investment rules, they don't have to buy any set number of shares.  If you
send a check for $25 and the company's stock goes for $20 on the date of the
purchase, for example, the company will usually credit your account with
1.25 shares.  Many companies give investors the option of reinvesting their
dividends or taking the payments in cash.

To get more information on direct-purchase plans, investors can contact
the NAIC at P.O. Box 220, Royal Oak, Mich. 48067 or (313) 543-0612.

Blackmon also publishes a directory that gives names and phone numbers of
companies that offer direct-purchase plans.

The directory costs $149 and can be ordered through Direct-Purchase/Dividend
Reinvestment News, P.O. Box 388, Etiwanda, Calif.  91739.


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David Andersen
UC Irvine







Newsgroups: misc.invest