Why can’t ordinary citizens purchase stock directly, without a broker or intermediary?
Thanks.
- Honesty
You can, for some companies which have a direct purchase plan:
It isn’t as convenient as going through your broker since you have to deal directly with the company for each issue you wish to buy, and wind up with, say, an account with Disney, an account with Intel, etc. I have a few shares of something that was given to me as a gift, which is in a direct account.
Addendum: actually, you will probably be dealing with some banking institution that the company has retained to handle these accounts for them, if you want to get picky, but it amounts to the same thing as far as you’re concerned. My gift shares, for instance, are in an account managed by BNY Mellon.
For NYSE stocks, they are all sold on the floor of the exchange. You need to be a member of the exchange to put in an order. Usually, brokerages are either members, or are affiliated with members.
For NASDAQ stocks, you need to belong to the National Association of Stock Dealers Automated Quotes system. The system is only open to members (who pay a fee that got toward NASDAQ’s costs).
In both cases, the purpose is to make money for those who are trading the stocks. If you want to buy and sell stocks yourself, you are welcome to join the exchanges – and are prepared to pay for the privilege.
Many (probably most) larger companies do have a direct purchase or DRIP plan, as well as being listed on an exchange. For instance, if you wanted to invest in Exxon Mobile, you could contact Exxon Mobile shareholder services and set up an account in a direct stock purchase plan. You don’t have to have a broker buy XOM through the NYSE for you.
Of course, some intermediary (the plan administrator) is still buying the actual shares for you, or crediting your account from a pool of available shares, but as far as the customer is concerned they are buying directly from the company. If what the OP means is “do I have to open a brokerage account to buy stocks”, the answer may be “no”, if you wish to buy shares in a company which has set up such a plan.
Direct answer: You can.
My answer: Why would you want to?
(Disclaimer: I’m not a broker, nor do I work for any financial company. So I have no dog in this fight)
Ok ok ok so you don’t want to pay “mean horrible fees” and the ol’ “I can do it myself” mentality. To which I answer:
- So-called “mean horrible fees.”
Most brokerage firms can discount trades, and in fact there are all kinds of companies (I won’t name names here) where you can do a lot of stuff online at minimal cost. Shopping around it’s not hard to find places where you can buy $10,000 worth of individual stocks for less than $100 in fees. Bargain!
1a. So let’s say you don’t have 10k in individual stocks to roll around
You probably shouldn’t be buying individual stocks anyway. If you’re piddling around with $100 here, $100 there, you should probably be in mutual funds, anyway, not stocks.
- “I can do it myself”
I tell you, I’ve seen more people in my lifetime f*** up more of their life savings using this battlecry of “I can do it myself” than I care to count. Sure, I’ve also seen people do miserably using a broker, too, but only those whom have used unscrupulous brokers. As with everything else, shop carefully and ask around and you’ll be okay.
HORROR STORY ALERT:
A decade or so ago I knew a proud know-it-all whom refused to ever use a broker, instead having every stock bought direct from company and issued in certificate form and mailed directly to his house. He had accumulated some $75k in various stock, all in certificate form, and had them stored in a safe in his den (pulling them out occasionally to impress people). Then came a burst, and his stock started falling on the market. In 4 hours of time it took him to race home, get it out of his safe, drive to a brokerage firm (I’ll skip the irony) to endorse it, register it, and sell it on the market, that $75 was only $15k by the time he converted it. Had he had it held by a brokerage firm, it would have been a 3-minute phone call and he would have been cashed out before it dropped so drastically. Or even better, he could have had it with the brokerage firm and had a standing Sell Stop at the brokerage firm that would have automatically sold it for him if it ever dropped below a certain price.
Moral of the story: You don’t have to use a brokerage firm, but why wouldn’t you?
I think the actual human retail broker is going to become a thing of the past. You can handle all of this stuff through E-Trade or Ameritrade without ever having to deal with a human.