Imagine buying shares in hot technology companies like AOL and Cisco without contacting a broker? NetStock Direct Corporation was preparing to launch ShareBuilder, a new online investment Web site that allows investors to buy stock in the top 350-publicly traded companies in dollar-based amounts-regardless of the stock price, as WS&T went to press.
For $2 a transaction, someone can set up a ShareBuilder account to buy $100 of Cisco and $100 of AOL- by choosing a dollar amount that can be automatically transferred from their bank account or payroll deduction, on a weekly, biweekly monthly, or quarterly basis.
The Bellevue, Wash.-based company claims it's the only place where investors can purchase fractional shares of publicly traded companies. "You can't go and buy 7/8ths of a share of a company on the market today," says a spokeswoman.
Launched in 1996, Netstock's original Web site www.netstock.com provides online access to direct stock plans (DSPs) and dividend reinvestment plans (DRIPS). More than 1,600 companies have set up such programs with the SEC to sell stock to the public.
Realizing that many companies like Cisco, Intel and Microsoft do not have DSPs, NetStock registered as a broker/dealer and a member of the NASD/SIPC, to focus on the most heavily traded companies.
NDC makes its money by charging users a $2 transaction fee ($1 for a child's account). In return, ShareBuilder provides aggregated statements and online tax calculations.
NDC vice president of marketing Brian Ratzliff says the average NetStock Direct customer invests in three stocks a month in increments of $85-$100 per transaction. Ratzliff expects ShareBuilder users to invest in roughly the same way. "It's like creating your own mutual fund," he says, "except that with mutual funds, you don't always want the stock the fund manager invests in."
Ratzliff says ShareBuilder and NetStock Direct are ideal for people who want to diversify their trading strategy with a longer-term, savings approach that lets them hand-pick their favorite holdings. That's why Ratzliff is not worried that the E*Trades of the world may eat his lunch. "Their emphasis is on trading," he says. "Customers look to us for core stocks they're going to invest in continuously. We're happy to live along side those guys." Unlike online brokers which typically want $1,000 to open an account, ShareBuilder requires no minimum investment. Investors can also trade in real time for $19.95.
However, Meridien Research analyst Bill Bradway questions the company's ability to attract enough attention and liquidity to fend off the competitive threat that online brokers may pose. "This is a tough alley to go down," he says. "Most independent investors would rather do things on their own through an E*Trade or a Schwab. NDC is going to have to generate a lot of marketing spending to get enough customers to want to do business with them directly."
Ratzliff, however, is bullish on the company's prospects, but says NDC would consider an alliance with a strategic partner if the right opportunity presented itself. "We strongly believe in our business model and are happy to go it alone, but would be receptive to the right partner."