Forget the rigors of a South China Sea island or the Australian Outback. If contestants on Survivor want a real challenge, perhaps they should try Wall Street.
In a survey of American investors, 85 percent failed a "survival" test on what to do in down markets or in other financially difficult times. The majority, for instance, incorrectly believed that there is an organization that insures investors against losses from falling stock prices or from fraud.
The survey, released yesterday, was sponsored by the National Association of Investors Corp., a trade association for investment clubs, and the Securities Investor Protection Corp., an insurance fund financed by the securities industry. The SIPC steps in to recover assets for investors when one of its member brokerages fails.
"It has become increasingly clear to us over the last few years that many investors have no knowledge or, even worse, incorrect knowledge about a number of key issues," Michael Don, president of SIPC, said in a telephone news conference.
Investors were asked five questions, with three correct answers considered a passing grade. The telephone survey of 933 adult investors had a margin of error of 3 percentage points.
Among the findings:
Only 16 percent of investors knew there was no government agency or nonprofit group that insures against losses from the stock market or investment fraud. Others said they were not sure or said losses were insured by the Securities and Exchange Commission, the Federal Deposit Insurance Corp. or the SIPC.
Almost two-thirds of investors didn't know the correct action to take when they suspected a problem with brokers or their firms. These investors said they would call the broker, branch manager or compliance department.
Complaints should be in writing, with investors keeping a copy for themselves. "The existence of a documented complaint can be critical to investors being able to recover money from an investment firm that collapses," Don said.
More than four of five investors didn't know what account levels would trigger a margin call, when investors are asked to put up more money or securities.
When buying on margin, investors put some money down and borrow the rest from the brokerage. Margin calls must occur when an investor's equity falls below 25 percent of the total account value. Brokerages often set higher requirements, particularly for volatile stocks.
Twenty-two percent knew to place a "limit order" while on vacation to protect a profit or guard against a loss in a fast-moving stock. Thirty-six percent said they would stay in touch with the financial news and their broker while on vacation; 3 percent would cancel their trip.
A limit order allows investors to set a price at which the stock would be sold.
The majority correctly answered that Chapter 11 bankruptcy allows a company to reorganize.
The survey comes after a General Accounting Office report criticized the SIPC for not educating investors about its practices and what documentation is needed to qualify for SIPC protection.
Don said the SIPC was taking steps to improve investor education before the GAO report. The group has updated its brochure and Web site at www.sipc.org.