The past few years have been painful for Jim King, a retired civil servant who dabbles in stocks and shares.

An enthusiastic trader amid the internet boom, Mr King is now sitting on some heavy losses. “Golly, it’s been bad. My share portfolio is down about 50 per cent from my purchase price,” says the 62-year-old, as he scans his share portfolio at his home in Ipswich.

“I bought BT at about (pounds) 10 sterling and now they’re (pounds) 2. It’s the same with Vodafone. I hope to recoup some of those losses but I can’t hope to get all my money back.”

But now Mr King, like thousands of other private investors, is putting his head above the parapet. Heartened by the recent FTSE rally, he is looking to get back into the markets.

The return of the private investor has come just in time for the City’s brokers and niche investment houses, which have been living on scraps through the bear markets.

From famine to feast, these houses have seen a sharp uptick in their share prices on the back of rising markets.

Evolution, Charles Stanley, Collins Stewart, Close Brothers, Brewin Dolphin and Singer & Friedlander all saw their share prices hit 12-month highs last week.

Now the private client advisory brokers are talking it up. Mr John Hodson, chief executive of Singer & Friedlander, said last week that business was picking up as he reported a 22 per cent drop in first-half profits.

Meanwhile, Mr Ken Ford, chief executive of Teather & Greenwood, went so far as to hail the return of a bull market.

“Our analysts called the bottom of the market in March, and every day it gets better. We have done a lot of volumes since then and we are expecting to do two or three new issues before Christmas, providing there are no terrorist attacks or other caveats. We are in a bull market.”

Mr Ford says the private client business, which accounts for about 10 per cent of group turnover, has been busy with “wealthy and successful” investors piling back in.

It must come as some relief to T&G, which cut its dividend and launched a rights issue after slipping into the red at its interim stage.

“It was tough,” says Mr Ford. “We all had to cut our overheads. Now, because we are operationally geared, any increase in turnover goes straight to the bottom line.”

Rival Brewin Dolphin was also hard hit by the falling markets. In May, the broker also slipped into losses. “The markets have been depressing haven’t they?,” bemoaned chief executive Mr John Hall at the time.

But Brewin is seeing the return of confidence in its private clients, who make up 90 per cent of the broker’s business.

Ms Charlotte Black, marketing director at Brewin, is very upbeat. She dismisses the idea that the return of the private investor to equities could be premature.

“We feel pretty confident because there has been recent consolidation about the 4,200 level,” says Ms Black. “The volumes are there. Financials and banking stocks are on the way up and there has been heavy trading in stocks such as Lloyds, Barclays, HBOS and RBS over the past three months. They always lead the way.”

For the online brokers, which have fixed costs and low margins, the return of private investors has provided a desperately needed lifeline.

Price competition to win market share and volumes has been savage. Many of those which started out at the peak of the telecoms, media and technology boom have been squeezed out of business.

Those left are breathing a collective sigh of relief. They say that volumes have doubled since March.

Ms Sue Concannon, managing director of Halifax Sharedealing, says July volumes were more than double what they were in February, when the market troughed. Meanwhile, Barclays Stockbrokers said private investor confidence has risen 76 per cent in the past year.

“Many of the small players who got hurt before and run away are returning to the market,” says Mr Mike Boydell, managing director of Moneyam, a website for private investors and day traders. “They are buying small cap stocks and technology.”

The numbers back up anecdotal evidence. Compeer, the market research group, reported a 42 per cent jump in online trades in the second quarter as well as an overall increase of 21 per cent in the volume of private investor share dealing on the first quarter.

“If activity carries on at current levels, we will see an increase of 10 per cent over the second quarter in retail volumes. This is certainly quite an increase given that a lot of people take their holidays over this period,” says Mr Richard Bethell, director at Compeer.

Day-trader Mr David Anderson – who trades under the name of Crocodile (his lucky mascot) – is watching every move in the market even while on holiday in France. He thinks things are on the up.

Mr Anderson, who divides his time between Wolverhampton and Le Touquet, hedges every trade but says he is taking longer-term bets by buying into construction stocks, such as Wimpey and Persimmon.

“I thought it would take a lot for investors to come back to the market,” he says.

“People have lost a lot of money in their pensions and savings products. It is surprising how quickly sentiment changes. But then nobody can get a decent return on money elsewhere and that is forcing people to turn back to equities.”

But not everyone is so confident. Mr Terry Smith, chief executive of stockbroker Collins Stewart, has not given up the bear quite yet.

“I only hope private investors know what they are doing,” says the outspoken Mr Smith.

“Their confidence may be misplaced. What’s the best performing sector this year? Technology – where the fundamental news is unremittingly bad. The bulls still haven’t had the stake driven through their heart.”

Mr Tony Dye, the contrarian investment manager who now runs his own hedge fund dealing in equities, is even more downbeat. Known as Dr Doom for his deep scepticism about the technology sector in the late 1990s, he remains bearish about market prospects in the current rally.

“Of course all the brokers are being bullish,” he snaps. “Their shares are leveraged to the market, so if the market is high their shares will be too.”

The plain-speaking Mr Dye remains resolute that the long-term outlook for equity investors is bleak.

“I thought we might have a rally. But, as always, people get carried away. The higher the market goes, the more bullish everyone gets. We might have a good six months, but over six years I think market returns are going to be pretty meagre. If you don’t get economic recovery – and everyone seems to have decided we are going to have it – it is going to get pretty nasty.”

Mr King, sitting at home in front of his computer, remains on the sidelines. He did dip his toe in the water recently when he sold some shares in AWG. But he is still not sure about wading back in.

“Me and my friends are in a bit of a dilemma. Should we have sold earlier in the year and then re-invested that money to pick up on that 30 per cent rally?” ponders Mr King.

“I remember Tony Dye saying in 1999 ‘look out, look out the bubble will burst’, and he was right. Now I am waiting to see whether his prediction that the market is going to go down again is right.

“I am still interested in equities, but I am waiting to recoup some of my losses. I am sitting, like a predator, ready to pounce.”