Caution Amid the Big Rally : Wall Street: Some money managers say they resisted changing their long-term strategies as the Gulf War began. And they worry about the economy.
Falling bombs and soaring stock prices last week became a prescription for caution for many investors, large and small.
To be sure, consecutive jumps in the Dow Jones industrial average of 114.60 and 23.27 on Thursday and Friday meant that somebody out there was buying, as good news from the Persian Gulf War apparently boosted investor confidence.
But a sampling of individual investors and money managers in Southern California on Friday did not uncover an enthusiastic rush to the market, although some said they felt a bit more optimistic than earlier in the week. And some small investors complained that the types of stocks they can afford--cheaper issues that will never make the Dow--did not participate in last week’s rally.
Retired Los Angeles stockbroker George Earnest got up at 6:30 Thursday morning to watch the market open, but most of the day he was glued to Cable News Network’s coverage of the war and did not buy or sell any stocks.
“It’s a strange market . . . so thin and volatile,” said the 82-year-old investor, who weathered the 1929 stock market crash and others since. But Earnest, who primarily owns blue chip stocks, said he isn’t giving up on the market. “Even a blind hog can root up an acorn once in a while.”
Raymond Riffkind, a retiree who spent Friday morning checking his stocks at a Charles Schwab & Co. discount brokerage office in Century City, bought some shares in an oil and gas partnership Thursday. Riffkind, who generally looks for solid stocks with good dividends, said the price of the partnership’s shares finally fell so low that he couldn’t resist.
The market’s ups and downs don’t bother him because “my money is invested in many different things,” he said. “The stock market will never keep me awake at night.”
At Fidelity Investments, a large mutual fund manager and discount brokerage, “we had quite a high percentage of investors (nationwide) in money market funds on the sidelines” out of the stock market, spokeswoman Pat Hardin said. On Thursday and Friday, there was “some movement” into stocks and stock funds, “but I wouldn’t characterize it as wholesale, or a buying frenzy or a stampede,” she said.
But a survey Thursday night of some of the Boston-based company’s more than 2 million customers nationwide turned up an optimistic tone, said Michael Hines, Fidelity’s director of marketing. For every person planning to sell stocks, four planned to buy; the ratio rose to 5-to-1 for investors in stock funds, he said.
“The main thing that we’ve gotten from this (survey) is today’s investor is very, very long term oriented,” he said.
A nationwide prewar survey conducted by the American Assn. of Individual Investors earlier in the week--before the end-of-the-week rally--found a much more downbeat mood. Of those responding, 22% were bullish on the market, 27% were neutral and an unusually high 51% were bearish, said John Markese, research director for the Chicago-based group.
“We’ve got a war, a recession and a banking system failure. What else can we get? Civil unrest?” Markese said.
Some Southland money managers said they resisted changing their long-term strategies as the war unfolded, adding that they are buying cautiously, mostly because of concerns about the nation’s weak economy.
“What happened this week did not cause us to take actions we would not have otherwise taken,” said John DeGroot, senior vice president in Los Angeles for U.S. Trust Co. of California, which manages $800 million in assets. “The short-term euphoria reflected in the market is nice for stocks, but once a greater sense of reality sets in, you will see the market make another move downward.”
Kurt Winrich, head of Winrich Capital Management in Orange County, said his investment decisions also have not been influenced by the Persian Gulf War. He said the economy influences him more, and he warns that investors should not view plunging oil prices this week as something that will jump-start the economy.
“The war causes a reaction on a day-to-day basis, but it really doesn’t change the fundamental direction of the economy. It’s not that it doesn’t make a difference, but it doesn’t change the direction,” he said.
Winrich, who manages about $220 million in pension money and funds for individual investors, said he invests in companies that he believes are relatively shielded from a recession.
Fred Astman, who heads First Wilshire Securities in Los Angeles, said he will refrain from buying during the war’s inevitable market swings, such as the one Thursday when the Dow Jones industrial average recorded its second-biggest point gain.
“We don’t like buying when everyone else is buying. When you have a run like we did, the next day there is usually profit taking,” Astman said.
