Investors chip away at Northern Rock

The Share Centre, has reported a 591% increase on last week’s account openings as investors have swooped to take advantage of a weaker Northern Rock share price.

Northern Rock also accounted for 34% of all deals yesterday.

The speed with which the accounts were opened illustrates the advances in online share dealing technology; investors can now react to changes in the stock market, without having to wait days for their applications to be processed. Even with greater measures for consumer protection, the share dealing industry can now move as swiftly as the prices of shares themselves.

Although the recent drop in Northern Rock’s share price may look attractive, The Share Centre is advising investors to think carefully before investing in the bank. Based on pound cost averaging, The Share Centre suggests people could invest just half or a quarter of the amount they were planning to put in. This way they can test the water without getting too wet.

Investors should also be cautious about basing their investment decisions on current company yields alone; a high yield does not necessarily represent the current value or reflect the real story. The banking sector is renowned for its high yields and is generally secure. Northern Rock is currently yielding around 16%, the yield was only 4.2% back in early July. Other companies in the sector such as The Royal Bank of Scotland, Barclays and Lloyds TSB remain strong and present less risky buying opportunities.

Nick Raynor, Investment Adviser at The Share Centre said, “In volatile markets like we are experiencing at present, it is important to consider your attitude to risk as well as your future financial aspirations. You should, of course, also continue to monitor your investments.

“The situation with Northern Rock is attracting those looking for a bargain - value investors, which in stock market terms means that they believe the market is underrating the company and its prospects. Although the forthcoming dividend payout and possible takeover situation may be appealing, we would advise novice investors to tread carefully and seek individual advice before jumping on the bandwagon.

“It is a good idea to review your portfolio regularly and setting ‘stop loss limits’ is crucial if you wish to minimise losses. Likewise investors should be strict when it comes to setting limits and target prices.”