Investors Unable to React Friday : Money Managers Brace for Barrage of Business
Money managers braced themselves for a barrage of business from individual investors as they surveyed the damage from the stock market free-fall that slashed 140.58 points from the Dow Jones industrial average on Friday.
The sharp drop in market prices occurred so late in the trading day that many small investors did not have time to react. Some small investors were said to be holding tight and others saw it as buying opportunity, but many are worried about what Monday will bring.
“People are asking: ‘Is this another Oct. 19 coming on Monday?’ ” said Hugo Quackenbush, spokesman for Charles Schwab & Co., the discount brokerage firm in San Francisco.
Oct. 19, 1987, is now known as Black Monday, the day when the Dow Jones industrial average fell a record 508 points. The Friday before that crash, on Oct. 16, the widely watched Dow average fell 108 points.
The drop on Friday accelerated in the last hour of trading because of heavy sell-offs triggered by computerized program trading, which seeks to profit from price differences between stocks and stock index futures.
As the news spread, phones began ringing at brokerage houses and mutual funds across America as investors began to react to the magnitude of the drop.
Calls of concern picked up late in the day at some mutual fund investment firms, which invest pools of money from individual investors.
Calls “were noticeable,” said Brian Mattes, a vice president of the Vanguard Mutual Funds in Valley Forge, Pa., “but not steep.”
“We rarely see any kind of immediate reaction,” said Steven E. Norwitz, spokesman for the T. Rowe Price investment funds in Baltimore. “People don’t know what happened in the market unt1768693876will be a very busy day.”
Fidelity Investments in Boston reported an “uptick in (phone) volume,” according to spokeswoman Jennifer Gavin, who added that some investors called to move money between funds.
Switching to Money Funds
“Normally,” Gavin added, “money has been going from equity funds to money market funds. That has been a fairly consistent pattern since October.” (Money market funds invest in government securities and bank certificates of deposit, traditional havens for conservative investors.)
Some, however, believe Monday may be a good day to buy because the sharp decline has created excellent bargains. “We’re going to be a net buyer of equities in this market,” said Michael F. O’Neill, president of GT Capital Management in San Francisco, a $6-billion investment fund.
Some investment houses plan to beef up their staffs during the weekend to handle calls from customers. The normal weekend staff of 25 brokers at Charles Schwab’s headquarters has been doubled, spokesman Quackenbush said.
Selling Discouraged
In Los Angeles, Sutro & Co. broker David Barber said he received about 100 calls from clients looking for advice, but he said he counseled them not to sell.
“What are we buying?” Barber said he told his clients. “We’re buying the quality of a company, and that hasn’t changed.”
Mike Monatlik, a broker for Prudential-Bache Securities in Beverly Hills, also advised clients to sit tight. “Looking forward is hard, always hard. But I think this (decline) is temporary.”
Barber, Monatlik and others said they so far have received few sell orders, in contrast to the panic that gripped the market in October. Small investors have now decided to “suffer with the market,” said Roy Sine, a broker in the Bateman Eichler, Hill Richards office in Pasadena.
Some money fund managers and brokers pointed out that investors who survived the Oct. 19 blood bath aren’t likely to be spooked by a single day’s drop of 140 points.
‘It’s Not Catastrophic’
“People might be a little numb to this,” said Scott Fortner, a broker in Paine Webber’s Santa Monica office. “I mean, 140 points is a big move, but it’s not catastrophic.”
Brokers said that many investors have already shifted their investments away from stocks and into government securities. “People moved into (U.S.) Treasury securities as a hedge against the market, and it appears to be working,” Fortner said.
The events on Friday did leave a residue of gloom on the floor of the Pacific Stock Exchange in downtown Los Angeles. Many traders departed right after the market close, leaving clerks to close the books for the day.
“There was nobody buying here,” said Jim Sams, a specialist for Paine Webber. He attributed the market’s dive to investors’ fears of a growing trade deficit and greater regulation of the financial markets, together with bitter memories of the Oct. 19 plunge.
“Everyone here got burned pretty badly (on Black Monday), and just the memory of that makes you stop buying,” Sams said.
“Happy Friday,” one dour-faced trader told his colleagues after trading had ended.
Staff writer Keith Bradsher contributed to this story.
