Web company offering fractional shares at $2 a trade
An Internet company in suburban Seattle is going after individual investors by making it possible for them to…
An Internet company in suburban Seattle is going after individual investors by making it possible for them to buy fractional shares of the 2,000 largest companies for as little as $2 a trade.
According to NetStock Direct Inc. of Bellevue, Wash., the program will ease novice investors into the market and encourage long-term investing because investors can dollar-cost-average the stocks they pick.
The idea isn’t novel, but it is rarely used these days, except in the case of dividend reinvestment plans.
To use the service, which was launched in December, customers log on to NetStock’s site, Sharebuilder.com, and set up an account electronically using a digital certificate. They then select weekly, monthly, or quarterly investments in whichever companies, and for however much, they want. There is no minimum.
NetStock consolidates orders and makes purchases weekly. If an investor wants to buy or sell shares in real time, the transaction price jumps to $19. The company says it’s setting up 1,500 to 2,000 accounts a day.
“Getting rid of things on a real-time basis is much more costly for us,” explains chief executive Jeffrey Seely. Further, he adds, “Our customers are looking to dollar-cost-average their investments by accumulating stock steadily, and selling it steadily.”
Mr. Seely, who previously focused on e-commerce strategies as an investment banker at Robertson Stephens & Co. in San Francisco, isn’t trying to go head-to-head with traditional brokerages.
Indeed, he estimates that a full 80% of his growing customer base trades through other brokers as well. “They go to those who do online trading really well. As it happens, we handle the business of automatic investing really well, and that’s why they come to us, too.”
Pamela Marshall, a researcher at a Seattle executive search firm, began using Sharebuilder.com at its launch for exactly that reason. Ms. Marshall has an account at Merrill Lynch & Co. Inc., but she says Sharebuilder is the first opportunity she’s had to buy fractional shares of companies she doesn’t already own — such as Gillette Co., Microsoft Corp. and Cisco Systems Inc., which are trading at around $38, $101 and $115, respectively. “As a small investor, the whole idea is to minimize my investment costs,” she says.
Analyst Jim Laird of the Yankee Group, a research firm in Boston, likes what the company is doing. “The philosophy behind Sharebuilder.com lends itself to long-term investing, which isn’t something we’ve heard a lot of as of late. It’s a message people definitely need to be reminded about.”
Trouble could be brewing
Unfortunately, as with many Internet companies rushing to offer customers new services, Mr. Laird isn’t as optimistic about the company’s outlook.
“NetStock has a head start,” Mr. Laird says, but “this type of system isn’t unfamiliar to traditional full-service brokerages, and if they want to build the same thing, they will.”
Mo Shafroth, a spokesman for Charles Schwab Corp., confirms Mr. Laird’s observation. “We’re always interested in ways we can serve better, and if [NetStock’s plan] works out, you bet we’re interested. We never say never.”
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