Confidence among private investors in the UK stock market has reached a new low, according to a leading independent financial adviser (IFA).

Mark Dampier, technical director of Hargreaves Lansdown, one of the UK's largest IFAs, told BBC News Online that investors were too battered and bruised by three years of falling share prices to invest this year.

Investors are sick of losing money hand over fist Mark Dampier

In addition, private investors and even some City professionals are waiting for a conclusion to the Iraq crisis before ploughing money into the market.

The warning coincides with a report from a leading City firm which shows that many of the best performing stock market funds from the five years to 1997 have been some of the worst performers over the past five years.

Sitting on losses

Mr Dampier said that 2003 was likely to see the lowest volume of investment from private investors in the stock market since 1988.

"Put simply, investors are sick of losing money hand over fist, even if they had invested in a better than average performing investment fund three years ago they would still be sitting on a 40-50% loss now."

Mr Dampier believes that the collapse of investor confidence could have grave consequences for the City of London, which has endured massive job cuts in recent times.

"Investment houses are finding it nearly impossible to attract any money at all."

What is more, a new report from Close Wealth Management highlights the extent to which once high performing funds - which attracted huge private investor interest - have fallen off their perch in recent times.

Fall from grace

According to research of the top performing stock market funds over the period 1992 to 1997, only three remained in this group in the following five year period.

In fact, many funds fell to near the bottom of the performance league table.

The biggest fall from grace was suffered by the Old Mutual European fund which was ranked first in the five years to 1997 only to drop to 1,174 subsequently.

Mr Dampier said the report's findings were no surprise.

"Two main factors are at work: the management that got the fund to its lofty position may have been poached or perhaps hot money from private investors flowed in ballooning the fund and making it too unwieldy to move in and out of stocks quickly."