Many Reap Profits--and Anxiety : Influx of Small Investors Makes Stocks a Hot Topic
When the stock market was in the doldrums several years ago, Daniel E. Cohen, a San Francisco advertising executive, invested in securities--which have soared. But worry has replaced his euphoria.
“We are all sitting with paper profits and we are scared to sell,” he laments. “What do you do with the money? I am paralyzed by success. I sat and prayed during the market’s big drop. But I did nothing.”
John Clark, an architect who teaches at the School of the Art Institute of Chicago, has noticed a change in his students. “There’s this one character who came into my office yesterday telling me what stocks I ought to be watching,” he said. “There’s a whole new breed of art student out there these days, with an interest in the market and a trust fund.”
Trish Nealon, an editor at a Chicago publishing firm, went to Easter dinner recently. Her father passed out investment materials along with the main course.
At cocktail parties, on commuter trains, in company cafeterias and on playgrounds where young mothers gossip while pushing their toddlers in swings, Wall Street has become a topic of everyday conversation. Which mutual fund to select, which newsletter to read, when to get into--and especially out of--the market are subjects of intense discussion.
Many investors, scrambling at the last minute to fund their Individual Retirement Accounts before Tuesday’s tax deadline, are nervous. Since September, millions of Americans have gloated over--and profited from--one of the great stock market rallies of the century. Now, volatility is the watchword; the Dow Jones industrial average plunged 82.5 points two weeks ago, its worst week ever, but rose 50.9 points last week.
“It’s a hot topic of conversation,” says Maribeth Allen, a middle manager of a large Chicago telecommunications company. “People who didn’t pay much attention to the market before are suddenly talking about investment strategies. People are excited and a little concerned at the same time . . . .”
Takes Profits to China
E. Webster Shaker, a management consultant in the Chicago suburb of Wilmette, is planning a monthlong trip to China, financed by his stock market success. Shaker has been investing for 20 years and is a member of the American Assn. of Individual Investors.
“There’s more discussion about the stock market and how it’s going,” said Shaker. “You hear it just about everywhere, at the water cooler, at the exercise class. Wherever you go people seem to be doing well and want to talk about it.”
Paul Kinney, vice president for investments at Dean Witter Reynolds Inc. in Glendale, Calif., now finds himself the focus of attention at cocktail parties or gatherings of relatives. “It’s a lot hipper for friends to talk stocks and mutual funds than a year or two ago,” he says. “A broker’s life is you can’t go anywhere and not talk business. You can’t dodge it.”
Kinney’s solution is to talk generalities. “What a market! Pretty amazing, isn’t it!” he enthuses. “The trick is you give ‘em a card and say you are always happy to help them out.”
No Longer Shunned
Arthur Silverstein, executive vice president of H. B. Shaine & Co. in Grand Rapids, Mich., agrees. “Before, you’d tell people at a party you were a stock broker and they’d walk across the room,” he said. “Today, the market is a hot topic and people are more apt to want to talk about it and seek advice.”
Silverstein’s firm sponsors “Wall Street Week” on the Grand Rapids public television station. He says it has become the most-watched program on public television in Western Michigan.
In Houston, late stock market quotations have become a weapon in the intense newspaper war between the Houston Chronicle and the Houston Post. Two months ago, the Chronicle launched a “Markets Extra Edition,” with television and radio spots promoting “same-day stock market closings” and hawkers at major intersections wearing T-shirts emblazoned “Markets Extra.”
“The edition has been a very big success for us,” said Page Haines, the Chronicle’s promotion manager.
Program Revived
When Houston’s KTRH radio switched to an all-news format, it dropped “Money Matters,” an investment advice talk show hosted by Bill Wood, a vice president of Rotan Mosle, a local brokerage firm. But this month “Money Matters” is back on KTRH, right in the middle of the news. “There were so many phone calls and letters to the station, they had to reconsider,” said Ro Anna Lovett, Wood’s assistant.
Wood’s broadcasts help his brokerage business. “Right now we’re seeing a new clientele,” he said. “And they’re not just yuppies--in fact the yuppies usually have less money to invest and go to discount brokers for mutual funds. Sixty to 70% of the people we’re seeing now are what you’d call dyed-in-the-wool CD’ers who had to find an alternative when interest rates went so low.
“We’re also seeing a lot of people forced into early retirement by the Houston economy who’re looking for investments that’ll provide them with regular income. One widow lady called me the other day. She was retired from Sears. She asked if we could put her into something low risk, kind of like a CD (a fixed-term certificate of deposit). She said she was losing so much ground because of the interest rates she couldn’t sleep nights. We went the whole route with her and put her in things like Ginnie Maes (Government National Mortgage Assn. securities).”
Some Signs of Change
Latest statistics from the Securities Industry Assn. show that institutions dominate the market, doing 65% to 70% of the trading. But there also are signs that more small investors are buying and selling.
Subscriptions to the Value Line Investment Survey, offering advice to investors, have climbed by more than 8,000 since September, the start of the bull market’s more than 450-point rise. Some software companies offering computerized programs allowing investors to track progress of their portfolios also report greater business.
“Recently, there have been a number of people who had no interest in the market who suddenly know everything. Suddenly they are taking subscriptions to investment magazines, market research letters and also taking courses and seminars,” says Schuyler Rector, a stockbroker with Atlanta’s Robinson-Humphrey Co., a division of Shearson-Lehman Bros. “These people think they are becoming suddenly knowledgeable, which is dangerous because they have suffered no pain from the past. It’s a whole new breed of investors with no memories.”
In these days before the deadline for acquiring IRAs, some brokers say they have been swamped.
“I’m opening more accounts than ever in my life,” said William Belanger, a broker for Merrill Lynch Pierce Fenner & Smith Inc., in Louisville, Ky. “A lot of them are IRA people. . . . We’re overwhelmed with mutual fund investors.”
Says Business Is Up 75%
“They’re wacky. Their running around like mad people. People are walking in off the streets,” said Leslie C. Quick Jr., chairman of the board and chief executive officer of Quick & Reilly Inc., discount brokers. Quick estimates his business is up 75% since September. “We have a lot of people who filed applications for accounts. We are pulling out applications filed five years ago.”
” . . . There is no inflation. There is the decline in oil prices and the decline in interest rates. I get people who ask me, where do you put the money?”
Where is Quick putting his own money these days? “I’m not in the market myself,” he answers. “I’m more inclined toward tax exempts.”
“We’re getting calls to the point where we’re almost running out of space on the phone,” says Earl Fisher of Stern, Fisher & Atkinson, a Los Angeles brokerage firm. “There are complaints from people saying they have difficulty getting through to buy or sell securities. . . . It’s the big IRA season. People are calling me up who I haven’t talked to for years, wanting me to do something for them. People rolling over Treasury bills who do not like the 6% yields are asking to be in stocks and bonds.”
Turnabouts Can Frighten
But many new, small investors find it frightening that the bull market can turn bearish within minutes, and paper profits can evaporate like puddles on a hot summer’s day because of computerized program trading by institutions.
Program traders buy and sell millions of dollars worth of stocks and make profits by playing the spread between stock prices and stock index futures. In the torrent of buy and sell orders that program trading sets off, the Dow Jones average can soar and plummet, leaving small investors feeling like corks on the seas of an economic hurricane.
Such volatility tends to remind people of the great boom that came before the great bust of 1929--which adds further apprehension to talk of paper profits. But economic historians disagree about how relevant 1929 is today.
“There are a lot of similarities,” said John Kenneth Galbraith, Warburg Professor of Economics at Harvard, and an expert on the period. “There was then a Latin American debt problem and then a heavy rush into imaginative new structures like the investment trust and holding company craze, and all of these have their parallels. . . .
“The important thing to recognize in any stock market development is you have two phases. There is adjustment to the new reality--this time the lower interest rates in a stronger economy, as many people see it. The second phase is when people get into the market to take advantage of the increase and get out before the next slump.
‘Nobody Should Be Trusted’
“The question arises whether that sort of attitude isn’t developing now. Nobody should be trusted for his or her predictions of the stock market. The stock market, you must remember, is populated by professionals who don’t know and amateurs who don’t know. There is even less security when the amateurs come in.”
John King, a history professor at the University of Houston, believes the 1929 analogy doesn’t bear much merit. “Personally, I don’t see many current parallels to the period of the crash,” he said. “The situation is entirely different. Although there are problems with the stock market values, there are also a number of government safeguards not in place in the late ‘20’s.”
“Of course, anything can happen,” he adds, hedging. “I don’t mean to weasel out of taking a firm line, but, as a historian, I have to.”
The other day, like children peering at pastries in a bakery, stock market enthusiasts pressed against the glass windows of Merrill Lynch’s investment information center in Grand Central Station, reading the price of leading securities and the Dow Jones industrial average on a large television screen. Occasionally, homeless men and women carrying their belongings in shoppings bags, stopped to watch the fledgling capitalists.
Opinions Abound
“I’d like to buy IBM,” one man announced. “I think it’s had its own correction.”
“The best thing for the market is President Reagan,” another amateur stock analyst asserted.
“I buy options. I come over once a week,” said an accountant carrying a briefcase, who declined to give his name. “I’ve done well. I bought a car, a Nissan Maxima.”
From the back of the crowd, someone ventured an opinion about oil stocks, hard pressed because of the precipitous drop in crude oil prices. “I’ve got Mobil. I’m thinking of Phillips Petroleum,” he said. “I want to increase my holdings of Mobil. Phillips is dirt cheap.”
The tantalizing specter of profits, of life’s better things, of security for the future, floated through the conversations, while other New Yorkers scurried for trains and the homeless looked on.
Watching Paper Profits
“It is a little nutty,” said Cohen, who moved from New York to become chief executive officer of Lowe Marschalk advertising in San Francisco. “When gold went up to $800, I saw all these people leaping out of cars and running into Deak-Perera with trays and silverware and gold. This is scary also. You are watching the stock market make 30-point moves. You’re watching this thing and instinctively you sort of know this can’t continue. You are going to wake up one morning, and, you should pardon the expression, there will be a ‘correction,’ and the paper profits will have gone away.”
But Cohen paused for a moment, and his conversation turned suddenly bullish. “It will be interesting to see what happens when the Dow reaches 2,000. That psychological barrier--2,000--we could pass that like a fast freight and look at 3,000. I don’t know how far down the price of oil will go. They are selling leaded gas for 76 cents a gallon. If you add that to the equation--Whoopie!”
Also contributing to this story were Times staff writers David Treadwell in Atlanta, Michael Wines and Sara Fritz in Washington and researchers Wendy Leopold in Chicago and Joanne Harrison in Houston.
