As Stocks Go, so Does Pros' Tension Level

In the stock market, as in real life, you're almost always better off if you don't take things personally. Avoid emotional reactions when your stocks soar or when they crash, experienced traders will tell you. Keep your perspective.

Unfortunately, many people on Wall Street appear to be losing touch with that logic. As the stock market hits new highs, the anxiety level among many investment pros is soaring. And their actions are wreaking havoc with smaller investors, who get caught in the cross-fire of emotional "shootouts" involving individual stocks.

If you have any doubts about Wall Street's angst, listen to Marilyn Puder-York, a clinical psychologist in lower Manhattan who counts many market veterans as clients: "In the last 15 years, I haven't seen the degree of stress that I see now," she says flatly. And that 15-year span, she notes, includes the aftermath of the 1987 market crash.

Alan Ackerman, market strategist at Reich & Co. in New York and a long-time observer of the stock scene, says of his peers, "Obviously, skins are thin now. . . . The state of the market and of the economy is putting great stress on people."

To some individual investors, that may not make much sense. Stock prices are up, interest rates are down, and we're bound to have an economic recovery in 1992, aren't we? What's not to like about the state of the market?

Yet with each jump in the Dow Jones industrial average--up 24.15 points Friday to an all-time high of 3,077.15--the tension gripping many pros worsens. Why? Because as stocks rise, so too does the fear of erring, either about the bull market's longevity or about individual stocks, Ackerman and others say.

That fear is manifesting itself most vividly in money managers' unwillingness to stay with the stock of any company whose earnings disappoint, even for one quarter. Forget long-term investing--there is no stomach for that today.

Case in point: Friday, shares of Dole Food Co. plunged $5.875 to $36 after the company reported third-quarter earnings down 42% from a year ago, apparently because of seasonal price declines in bananas that were worse than expected.

Another major casualty late last week was personal computer firm AST Research, which slumped $5.375 to $26.625 over the course of trading Thursday and Friday, despite reporting quarterly earnings up 44%. Some investors fear that AST can't keep up that performance.

Maybe Dole and AST deserve what they got.

Stocks have always reacted to earnings announcements, after all; if there is good reason to believe that a company's earnings are heading lower, the stock probably should drop as well.

What's different today is the severity of the declines that many stocks suffer when they disappoint and the sense of betrayal that some investors harbor--as if the company did this to them, personally.

One investor relations officer for a company that recently announced an earnings decline recounted the anger that spewed over the phone from money managers who had held the stock.

"They were downright rude ," the investor relations officer said.

Why the bitterness? For one, it's not easy to pick winning stocks in this market, and that makes the losses that much more painful.

In the 1980s, everything seemed to rise, thanks to takeover mania. Now, investors have to search out bona-fide good companies--and when they turn out not to be, it's hard to swallow.

Also, the money-management business is more than ever a short-term performance game. You have to beat your rivals at stock picking each quarter, or your clients may desert you for someone with a hotter hand. Consider: Investors could choose from 579 stock mutual funds in 1985. Today, there are more than 1,100 funds.

The need to show short-term results has forced more Wall Street pros to adopt the "cockroach theory" of investing: If you see a problem with one of your stocks, you should assume that it's just the first of many problems you'll see from that firm. Find something else to own.

"People are learning that you better just get rid of a stock on the first bad surprise," says Melissa Brown, an analyst who tracks corporate earnings trends for Prudential Securities in New York.

Of course, a company's short-term problems don't always turn into long-term problems. But many investors can't take that chance. Worse, cockroach-theory investing perpetuates itself, because the larger the pack of investors who take that very short-term view of stocks, the fewer investors left to bargain-hunt for depressed issues.

So stocks that fall on short-term disappointments tend to stay down--which leaves the sellers feeling that they did the right thing in bailing out.

It's the terror that many Wall Streeters now feel about doing the wrong thing that is the root cause of their trigger-fingers, says Puder-York, the psychologist.

The severe contraction of financial jobs since 1987 has left the survivors shell-shocked, she says. Though better times have returned to Wall Street, she finds that no one feels as if his or her job is safe. And you don't have to be working on the stock exchange floor to have that attitude--it's commonplace among brokers, money managers and other financial professionals all over the country.

"I see a lot of anger, and a lot of stress," Puder-York says. "There's a feeling that, if you fail, or if you make a mistake, there isn't enough time . . . to correct it.

"In the early 1980s, there was a confidence or an optimism about the rationality of the market. I don't see it, I don't hear it anymore--even from the people who on the surface have very secure positions."

In counseling her Wall Street clients, Puder-York says she tries to get them to restore the distance between their sense of self and their job, to remove the emotion and thus put investment decisions back in context: You are not that bad stock that just cost you money; it's a thing, and it didn't hurt you on purpose. Look at it rationally.

If that sounds like so much psychological mumbo-jumbo, it's worth noting that much the same message was handed from legendary investor Warren E. Buffett to the traders at brokerage Salomon Inc. in August.

Upon taking control of the scandal-ridden firm, Buffett--well known for his rational, long-term investment approach--told Salomon traders that he would no longer tolerate practices that bent the rules for the sake of short-term profit.

"If you lose money for the firm by bad decisions, I will be very understanding," Buffett said. "If you lose the reputation for the firm, I will be ruthless."

If every money manager had Warren Buffett's attitude, Wall Street psychologists would probably have a lot fewer patients. But until that day arrives, the stock market is likely to become an increasingly nervous and volatile arena where rationality is in short supply and where no stock is truly safe.

For the small investor, that doesn't mean "stay away from stocks"--it just means "know why the big players do what they do" and make your own decisions accordingly.

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