MR MONEY MAKER: Spread your bets by backing the stock brokers like CMC Markets
One effect of the pandemic and the consequent lockdowns has been that many have tried to take up useful hobbies; others have adopted habits such as online trading or spread betting – a wager on whether an asset or market will rise or fall – which you can either regard as being a perfectly sensible way of potentially making money, or assisting the spawn of Satan in spreading evil behaviour. Perhaps the latter description is a bit strong but certainly this kind of trading and betting can be both constructive and destructive.
Now combine increased spare time during lockdown, the development in useful technology and stock markets that went through a global spasm, and you have the makings of a fast growing business. For some, this has provided a great opportunity to punt into near worthless shares like Gamestop and create career-changing amounts of money – such as several previously debt-laden US students I know who are now debt-free! But beware: others have found a seductive habit turning into a dangerous addiction.
Professionals: If you wish to have your investment ‘kick’ you have to use a provider
Why Does It Matter?
If you wish to have your investment ‘kick’ you have to use a provider and, following the old well-trodden path of selling spades to miners, we should look at the broking and investment houses who ply their controversial trade. The difference between horse race betting and stock punting is wafer thin – probably the width of a set of red braces. The main distinction is that usually your stock investment will still be running long after your exhausted nag has finished its course.
What Should I Do?
You could look at the quoted stockbrokers and others like them, but many of these still have a whiff of old markets to them and are designed for the benefit of themselves rather those dreadfully tedious customers.
However, there are also those that don’t have that market snobbery and these would be the often maligned (including by me) spread betters. I am emphatically not encouraging anyone to go down that path of betting, but some of these providers have a positive track record of running their business through tougher times.
One company that comes to mind is CMC Markets. Founded in 1989 by the somewhat controversial figure of Peter Cruddas, he has built a very successful business serving both the private investor and some of the institutions.
Its share price, not surprisingly, has done very well over the past year, but I like the fundamentals of this business and it is in the right place to benefit from the rigours of the past year. I would wait for a pause in this rally before buying. But it is certainly one for my watch list.
However, to spread your risk across the financial service sector, then a US passive fund called The Financial Select Sector SPDR Fund (XLF) fits the bill.
It is probably the best way to be betting on the bet makers.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.