RIO DE JANEIRO (Reuters) - When Paolo Portinho meets up with his musician friends for a night out in Rio de Janeiro, they jam a few tunes and knock back some beers -- but only after having a serious talk about the stock market.
Brazilians' long-held suspicion of stock investment, born out of years of rampant inflation and economic instability, is evaporating in the face of a Sao Paulo market that has more than tripled in 4 years on the back of a booming economy.
The number of individual investors in Brazil has risen six-fold in the past five years and more than doubled since 2006 to nearly 490,000. In 5 years, the daily amount they trade has soared to 1.8 billion reais ($1.1 billion) from 120 million reais ($73.6 million).
At a time when many Americans and Europeans are fretting over their jobs and houses as recession looms, magazine covers here are full of pictures showing grinning investors being showered in cash from their stock market exploits.
Despite a pullback in recent days, the market's Bovespa index is up 1 percent this year, compared to a 44 percent surge in 2007.
That compares to a 10 percent fall in the U.S. Dow Jones index and double-digit losses in several major European stock markets.
"I've been trading stocks since I was 18 but I never saw anything like this," said Mauricio Bastter Hissa, a 44-year-old who has written several best-selling books on investing here.
Hissa, a triathlete often found walking his German Shepherd dog near Rio's Leblon beach, gave up his job as a doctor last year to meet growing demand for his workshops and investment advice on his website.
Brazilians, many of them with spare income to invest in stocks for the first time, are signing up in droves to sites like Hissa's and brokerages with Internet trading sites such as Agora (click on www.agorainvest.com.br), and independent brokerage Spinelli (click on www.spinelli.com.br).
"Almost all of the old broker firms are going into the Internet business," said Portinho, 35, who heads the National Association of Investors (INI) in Rio and plays guitar when he meets fellow members of his investment club.
"They should be, because home brokers are a fever among Brazilian investors." Home brokers is the Brazilian term for Internet trading sites.
That is prompting industry change as banks seek to expand their brokerage business.
Banco Bradesco, Brazil's largest private bank, bought Rio de Janeiro-based Agora in April for $494 million, picking up its 29,000 active clients. Banco Fator, one of Brazil's last independent investment banks, has said it is scouting 4 or 5 brokerage investment targets in the expectation that share trading will surge in the years ahead.
Brazil's attainment of investment grade status in April -- a recognition of the emerging giant's growth prospects and debt reduction -- spurred another surge of investor interest.
The volume traded through home brokers hit 36.8 billion reais ($22.5 billion) in May, up 32 percent from April, according to Agora.
Amid the excitement, though, clouds are forming as inflation heads higher and the economy starts to cool.
The Bovespa index -- whose fortunes remain heavily tied to global demand for Brazil's commodities -- is finally showing signs of catching the rest of the world's cold with an 11 percent drop in June. Last year's red-hot IPO market has virtually dried up.
A proliferation of advertisements in newspapers and magazines offering too-good-to-be-true returns on stocks suggests some people may be vulnerable to a downturn.
But the number of investors relative to Brazil's 185 million population remains tiny, leaving much room for growth in the longer term.
"The penetration rate is still very low," said Marco Melo, head of research at Agora.
Driving the investment boom has been a steep fall in interest rates. Current rates around 12 percent may seem high by international standards but that kind of return in a savings account is "peanuts" for Brazilians who not long ago could get 25 percent on government bonds, Portinho said. The costs of opening and managing a trading account have also plummeted.
The days in the early 1990s when annual inflation hit more than 1,000 percent have left their scars on investors, however. Experts say many lack financial expertise and are wary of straying from big names like mining giant Vale and oil firm Petrobras.
"People are not well educated," said Hissa. "Not only in stocks, but in their finances -- people spend all their money, borrow a lot of money and pay 10-20 times in (high-interest) installments."
Lacking trading savvy, many Brazilians are turning to investment clubs to tap into others' expertise. There were 2,372 investment clubs in Brazil as of March, doubling from the end of 2005, with total investments of about 15 billion reais ($9.2 billion).
Members pay a small fee to the brokerage, which takes care of the accounting. About 20 percent of Brazilian individual investors use clubs, according to the INI, compared to less than 5 percent in the United States.
"I don't have much economic knowledge to decide which stock to buy," said Gilson Moura, a 38-year-old health insurance executive who invests about 500 reais ($300) a month through his Rio investment club. "(Aircraft maker) Embraer and Vale would be easy choices but maybe I can get a better result in the long term with a club."
Reporting by Stuart Grudgings; Editing by Eddie Evans