One Pulls Back, One Quits Market, but One Is in to Stay : How 3 in Orange County Weathered the Crash
When Doug Candler was offered the chance to take early retirement and a lump-sum settlement from U.S. Steel Corp. last year, the 58-year-old sales executive jumped at it.
For a change, Candler figured, he would be in charge of his future. When the checks arrived at Candler’s seaside home in San Clemente in early September, he took his six-figure retirement fund and divvied it up into several investment accounts. About 70% went into the stock market, which had been climbing--sometimes spectacularly--for 5 years.
Then, on Oct. 19--a year ago today--the Dow Jones Industrial Average plunged 508 points, the biggest 1-day decline in trading history.
But Candler emerged almost unscathed. He had “surrendered to greed” the previous Friday after a 4-day market decline had eaten up about 5% of his portfolio value. “I just didn’t want to lose any more.” he said. “I had no idea that things would get so much worse on Monday,”
Although he was spared, the crash has changed Candler. He still invests, but he is much more conservative now. And he believes that the market is no longer a good place for most individual investors.
Norman Seastedt, who lives just up the coast in Laguna Beach, feels much stronger than Candler about the potential perils of post-crash investing. He is exiting the market entirely.
Seastedt lost a lot of portfolio value in the Oct. 19 crash, but he reinvested in stocks he “bought at the bottom on the 20th and 21st” and has recouped most of his lost profits. “Now,” he said, “I am getting out.”
Shinichi Hamashige, on the other hand, is firmly convinced that the market remains a great place for individuals to invest.
The retired pathologist, an Irvine resident, has a large percentage of his assets, “a good seven-figure amount,” in stocks--even though he was hit quite hard in the crash. And he has no plans to get out.
Candler, Seastedt and Hamashige are representative of three relatively distinct groups of investors across the country in terms of their responses to last year’s market crash.
Area brokers say that stock holdings by individuals in Orange County are down considerably from a year ago, with less-risky investments such as Treasury bills, certificates of deposit and bond-based mutual funds taking up the slack.
What ran many out of the market was a record $1-trillion loss of stock value in the 5-day slide that climaxed on Black Monday. Skidding stock prices during the week of Oct. 12 knocked $500 billion in value out of the market, and the Oct. 19 crash sucked up another $500 billion.
Little wonder that the number of individual investors in the market has declined in the past 12 months. And little wonder that the average individual investor’s stock portfolio is considerably smaller.
The role individuals play in the Wall Street game has been shrinking steadily for about 20 years as big institutional investors--pension funds, insurance companies and professional money-management firms--have expanded their presence and now are responsible for about 80% of all stock trading.
Last year’s collapse speeded up that shrinkage and reintroduced into the market the long-lost concept of risk.
After Oct. 19, investors tended to opt for one of three basic strategies: to stay in the game, but with a lot more caution and a much smaller stake; to withdraw completely, or to continue to play in a big way.
Surveys taken by major brokerage houses and investment journals in the past year indicate that the first option has become the most popular with individuals. Total withdrawal runs a close second.
Market researcher Al Sindlinger, in a recent survey, found that only about 4% of individuals who owned stocks last month planned to buy more in the immediate future. The figure was close to 25% in early October, 1987, and normally runs around 15%.
The percentage of households nationally that owns stocks or mutual funds also has slumped, according to Sindlinger & Co. figures, dropping from about 33% in 1974 to 24% last month.
Further, the Federal Reserve recently reported that the percent of household assets invested in the stock market has shrunk to about 19.5% from a high in 1968 of 35%. The 25-year norm, the Fed reported, is 23.2%.
Candler, who admits that his retreat from the market one trading day before the crash was sheer serendipity, said he has learned a lot in the past year and has substantially altered his investment strategy.
“Now, I’ve got about 50% of my assets in liquid investments, like money market funds and CDs, Ginnie Mae bonds and some junk bond mutuals,” he said. “About 40% is in aggressive growth funds, and only about 10% is directly invested in individual stocks.”
Black Monday, he said, “didn’t scare me away. I had to recover, and I thought that using some of my funds to stay in the stock market was a good way to do it.
“But I don’t hold stocks very long. I’m usually in and out within 30 days; the money I have in stocks is what I call my ‘fool-around funds.’ It is money I’ve set aside to gamble with and that won’t hurt me if I lose it.”
So far, he said, his strategy seems to be working. Since January, Candler said, he has posted a 30% gain on his direct stock investments with a combined gain of 15.5% on his entire portfolio.
For Hamashige, last Oct. 19 was a fuzzy day in history. He certainly knows what happened, but he was in a remote part of South America that day, away from newspapers and radios and televisions, so the immediate impact was lost.
“In fact,” he said with a chuckle, “I didn’t learn about it until I got to Buenos Aires a week later. And by the time I got home, my broker was a lot more upset than I was.”
The 62-year-old physician said that he has been a market player for more than a decade and that profits from his stock investments enabled him to retire about 18 months ago.
“I picked the stock market rather than real estate or something else,” he said, “because it is dynamic, very fluid, and I thought I could get a better understanding of it than of real estate. Also, you need a lot of capital to get into some investments, but I was able to start in the stock market with $3,000.”
Although the Oct. 19 crash “cost me a huge hit, in the six figures,” Hamashige said he has never thought of getting out.
“I am very self-directed and always have been,” he said. “My philosophy is that nobody cares about me more than I do.” The stock market, he said, lets him direct his own affairs.
Still, Hamashige said he has made “some changes” in the past year.
“I am self-taught, and I believe that all you have to do is hit one right and you can make a fantastic gain,” he said. “All along I have tended to keep with the blue chips, but before the crash I made some very speculative buys as well. Now, I have gone much more into blue chips and consumer stocks and gotten away from the more speculative stocks.”
For his part, 49-year-old Seastedt, a market player for 20 years and a former accountant and corporate financial manager, thinks that the market has become too risky for individuals.
“My attitude has definitely changed in the last year,” Seastedt said. “The market had a lot of excitement in it for the 3 years before Oct. 19. You could buy almost anything and be rewarded. . . . It took very little thought, and a lot of people got lulled. I invest for myself and two small pension funds, and I made pretty fair profits. I was lulled into feeling that the stock market was a very good place.”
Seastedt said he lost about 5 years’ worth of profit, plus 20% of his initial investment in the crash. But by purchasing a lot of stock on Oct. 20 and 21, “I’ve come back pretty well,” he said. “I’ve held onto most of those stocks and made back most of the losses.”
His attitude toward the market now, however, “is very cautious. I am tending to get out. I think there is going to be another substantial adjustment, so I am more comfortable in government instruments and money market instruments.”
Seastedt said he is concerned that federal economic policies are inadequate to cope with the growing budget deficit and believes that there “is a general lack of confidence around the world in the U.S. . . . I don’t think either presidential candidate has the strength to resolve these problems, and I think that is going to flow into the market.”
There are other concerns driving Seastedt, however.
“Before the crash,” he said, “being in the market was like being in Vegas and playing the tables. You got immediate rewards. The whole philosophy of investing for long-term gains is gone, and an investor has got to stay in touch with the market daily. You have to know what makes stocks move. This is why a lot of people are getting out. . . . They perceive the market as something that is being manipulated, so the market is falling out of favor.”
Even Candler, who disagrees with Seastedt’s overall investment philosophy, agrees with his reasons for pulling out.
“I think the market is still a decent place for individuals to make investments, if they have the time to devote to it,” he said. “Otherwise, it’s not the place for the little guy. And I wish that they would make some changes, like getting rid of program trading and really punishing” insider trading and other illegal manipulations “to get back the small investor’s confidence.”