O.C. Putting Stock in Market
Americans’ love affair with the stock market is even more passionate in Orange County, where half of all residents own stock, compared with 43% nationwide, according to a recent Times Orange County Poll.
Although county residents still consider their houses to be their biggest single asset, the poll findings clearly demonstrate the region’s shift away from real estate and into the stock market as a means of saving for the future and building wealth.
“What really jumped out is the fact that so many Orange County residents are riding the bull market of the ‘90s,” said Mark Baldassare, the UC Irvine professor who conducted the poll of 600 residents for The Times in March. “So many people have turned to the stock market to achieve their dreams of greater wealth, to achieve a better lifestyle.”
But some troubling signs also surfaced. Doe-eyed investors, whose infatuation with equities has helped fuel the market surge of the past few years, often reveal a profound naivete about stocks.
More than 40% of the poll respondents considered the stock market a relatively safe place to invest, and fewer than one in five believed they would be hurt financially if the market crashed.
More than one-third thought of themselves as knowledgeable about, or even expert in, the market. Yet, of those who owned stock, about one-third said they were beginners.
The findings take on added significance in light of the stock market’s recent volatility. After reaching an all-time high of 7,085.16 on March 11, the Dow Jones industrial average plunged 10% through early April. Last week it recouped much of that loss, but the turbulence has prompted renewed concerns over whether the bull ride of the last 6 1/2 years has at last come to an end.
But for better or worse, it’s clear that Orange County residents have forged deep ties to Wall Street, whether through 401(k) plans, mutual funds or individual stocks.
Eric Williams, a 34-year-old computer systems engineer who lives in Los Alamitos, summed up the prevailing attitude about the stock market this way:
“If you want to make money, it certainly is the place to be.”
Often a Good Thing, but Not a Sure Thing
For the most part, experts see the region’s high level of investment in the stock market as a healthy trend--much more so than the county’s past obsession with real estate. Over the long haul, they note, the average stock market return has been unequaled by other types of investments.
During the past decade, the stock market’s run-up has helped Orange County “come into its own in terms of creating cutting-edge industries,” said Peter Case, a Merrill Lynch district vice president in Irvine.
Legions of local entrepreneurs have made fortunes taking their companies public--and investment specialists like Case say there’s no reason why average citizens shouldn’t share in the good times.
But experts also worry that many investors might be guided by misconceived notions about the stock market.
Take Ramin Rafii of Costa Mesa, a 26-year-old telecommunications analyst who said he researched the stock market for six months, then on advice from an acquaintance bought newly issued shares of Irvine apparel maker Mossimo Inc. last year. Part of the stock purchase was with borrowed funds.
The stock soared to $50 a share, then plunged to less than $10. It closed Friday just under $8.50 a share. Now Rafii is faced with repaying the loan with money from a CD.
Next time, he said, he’ll put his money “in a blue chip like Microsoft. They did 86% last year.”
Statements like that “stick in my throat every time I hear them,” said Robert Burns, a vice president and branch manager at the investment firm A.G. Edwards & Sons Inc. in Dana Point.
“It’s like, ‘You can’t go wrong with California real estate.”’
More Neophytes Buying, Being Sold
To be sure, the stock market stampede is by no means just a local phenomenon.
The amount of new cash flowing into stock mutual funds alone doubled in the United States last year. The Dow Jones industrial average soared 33.5% in 1995 and 26% in 1996, thanks in large part to the tide of money being funneled into the market by small investors.
These individual investors, many of them stock market neophytes, have been bombarded with financial advice in newspapers and magazines, on television, over the Internet, in bookstores and through the ubiquitous investment seminar. Wall Street firms that once ignored the little guy are now marketing securities like burgers at McDonald’s.
“People are getting information overload,” Burns said. “With all that has come more confusion.”
Indeed, many investment advisors say their main mission during the heady stock market is to keep the quick-buck mentality in check. Though many county residents have done very well by investing in stocks, “they’re confusing brilliance with a bull market,” said Jerry Slusiewicz, a senior investment specialist at UBOC Investment Services in Newport Beach.
Still, judging by the responses to the Times Orange County Poll, enthusiasm for the stock market runs high.
Many respondents--such as Julie Harkins, 52, an Irvine middle school teacher--said they’d like to own more stock. Harkins has “a microscopic mutual fund” and a small number of shares in several of the Baby Bell telephone companies. “We should be more into the stock market, because it’s a higher return on your money,” she said.
Even many of those who didn’t own stock said they hope to in the future.
Cypress resident Ben Gehrman, 54, a sales representative for a cigar company, said he’d like to invest some of his wife’s credit union money in the stock market, “where I can get a better return on the money.” He’s owned stock before, he said. “I learned that if you have a good strong company that has cash and doesn’t borrow money, you just hold on and you come out ahead.”
Real Estate Slump Spurred Stock Buys
That Orange County residents are even more involved with the stock market than the nation as a whole is understandable in light of the region’s history and demographics, investment specialists say.
For decades, the county’s wealth was inextricably linked to rising property values. As the population swelled, new communities rose on former bean fields and orange groves. Houses were more than homes, they were nest eggs. By the 1980s, double-digit price increases were taken for granted.
That all came to a crashing halt in the 1990s. With Southern California real estate mired in recession, where else could county residents turn for the kind of appreciation to which they had grown accustomed? The booming stock market provided a ready answer.
Orange County’s embrace of the stock market is also not surprising given its relative affluence, since higher earners are more likely to invest in equities. Per household after-tax income in the county was more than $50,000 last year, well above the U.S. average of $40,000, according to Market Statistics Inc., a New York research firm.
To their credit, some county residents appear to be taking a thoughtful, measured approach to investing.
Among them is Max Wry, 30, of Westminster.
Wry moved to Southern California from Tucson seven years ago with dreams of becoming “the next Steven Spielberg.” That didn’t pan out, but he now has a good job selling advertising for a parenting magazine. He and his wife, Kristi, together earn about $100,000 a year, and they take their financial responsibilities seriously.
The Wrys put money regularly into their 401(k) plans where they work. They began saving for their 2-year-old’s college education before he was born, and have invested in a stock mutual fund that attempts to mimic the returns of the overall market. Their long-term goal is “having enough money when I want to retire, and to not have to live in a box,” Wry said.
Expectations Often Exceed the Reality
For many Orange County residents, however, it’s evident that a chasm exists between their expectations about what the stock market can provide and what experts say is realistic.
Survey respondents routinely referred to the stock market as the best means of investing for their retirement or other major goals. Yet many seem to be taking a shotgun approach, with no organized plan or thought-out strategy.
Joan is a 28-year-old Garden Grove resident who is expecting her third child. She and her husband together earn about $50,000 a year, and are scrupulous with their money. They avoid debt, shop for bargains and clip coupons religiously.
Concerned about their future, the couple recently opened an investment account to help save for their retirement and their kids’ college education.
But there was no comparison shopping this time. They chose a fund based upon a friend’s recommendation. “We trust him,” Joan said. “He’s done good for other friends of ours.” She’s not sure exactly what the fund invests in. “It just tells us how much we’ve put in and how much we’re guaranteed.”
Such good intentions were also evident in the remarks of Kayanna Staley, a 50-year-old medical transcriptionist with four grown children. And, at first blush, it would seem she and her building engineer husband have mapped out a sensible plan.
The Staleys “live very frugally” in their Westminster home, Staley said. Four years ago, when her husband left a job at Sears, they rolled over his profit-sharing money into about half a dozen “low to moderate risk” mutual funds, which now have an accumulated value of about $96,000.
“We’re planning on a 10% return,” she explained. “We could not get that with CDs.”
Sounds reasonable. But underlying that approach are some common misconceptions.
“People shouldn’t look at trying to achieve a certain rate of return,” said Richard Gadbois, a Merrill Lynch senior vice president in Newport Beach. “They need to evaluate their entire financial situation and their long-term goals, and invest accordingly.”
‘Conservative’ Doesn’t Necessarily Mean ‘Safe’
Investors also mistakenly believe themselves to be safe because they’ve invested in a “conservative” stock or fund, investment advisors say. Or, they fail to adequately diversify their holdings among different types of securities.
Even 401(k) funds, which people generally consider secure, are often dangerously underdiversified, advisors say. One common trap they see people fall into is investing far too much of their 401(k) money in their employer’s stock.
The biggest mistake investors make, experts say, is that they buy stocks when prices are high, then sell when they fall.
In the forgiving stock market of the past two years, such bad behavior has been rewarded, experts say. Eventually, it could come back to haunt such investors.
So how will all these inexperienced investors with inflated expectations react when the stock market is in a major slide?
Poll respondents overwhelmingly indicated that they considered the stock market a long-term investment.
But whether they’ll stick it out when the moment of truth arrives is a question that perplexes even the most seasoned professionals. As Burns noted, “People are not used to seeing what their state ments look like when they’re in a down market.”
Federal Reserve Chairman Alan Greenspan’s recent warnings against “irrational exuberance” and “excessive optimism” in the stock market were intended to defuse a possible panic, said Lyle Gramley, chief economist at the Mortgage Bankers Assn. and a former Fed governor.
Greenspan “was doing the nation a big favor by trying to cool the market with words before a big rock fell on it,” Gramley said.
A few contrarians think the rock will fall regardless.
“The public has gotten itself into a crisis, and I’m sure it’s worse in Orange County,” said Albert Sindlinger, a well-known pollster who conducts surveys on personal finances.
“People have come to the conclusion they have to get into the stock market to protect themselves, and that the stock market will always rise,” he said. “Millions of people will lose their assets.”
Though most stock market veterans consider such views alarmist, many have nonetheless grown concerned over what they say is a pervasive attitude that the stock market represents easy money.
“This is a world we’ve never known before,” Gramley said. “No one knows what’s going to happen.”
Though Orange County is more susceptible than other regions to a stock market nose dive, that alone wouldn’t be enough to send it back into a recession, said Steve Cochrane, senior economist at Regional Financial Associates, a West Chester, Pa., research and consulting firm. But it could weaken the economy enough so that another piece of bad news would push it over the edge.
Does all the consternation over the stock market worry Roger Young?
The 70-year-old Mission Viejo man said he’s seen it all before. A retired Los Angeles firefighter, Young bought stock just before the market crashed in 1987, then “cried a lot” when he saw most of the value evaporate. “I just let it ride,” he said, “and it all came back.”
Now he’s thinking that the way things are going with the stock market, another big drop might be overdue. He’s considering cashing out some of his holdings and putting the money in Treasury bonds.
On the whole, stocks “are better than being in the bank, that’s about the size of it,” he said.
“I’m not nervous. I just wonder if it isn’t time to start making some changes, just in case.”
TOMORROW: Investors and the well-heeled are increasingly carrying large balances on their credit cards, suggesting that more people are, indirectly, borrowing to save.
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Market Players
Half of Orange County adults own stocks or stock mutual funds, and the proportion rises with household income:
Do you currently own any stocks or stock mutual funds?
Stocks
Total: 50%
Household Income
Less than $50,000: 29%
$50,000-$99,999: 56%
$100,000 and more: 74%
* FACTS AND FALLACIES: Common mistakes and misperceptions of novice stock investors. A38
* RECEDING GOALS: O.C. residents know the need, but few save anywhere near enough. A38
* FIRST, HAVE A PLAN: Step one is realistically calculating how much you’ll need later. A40
Source: Times Orange County Poll
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Market Golden in Orange County
Most folks in Orange County consider their homes their primary asset, but stocks and stock mutual funds are a hot ticket, particularly among those with higher annual household incomes. One-fourth of those invested have at least $50,000 at play. Part of the appeal: Huge majorities of investors say they would profit from a sale and would not be hurt if the market took a 1987-like dive.
Do you currently own any stocks or stock mutual funds?
Stocks
Total: 50%
Household Income
Less than $50,000: 29%
$50,000-$99,999: 56%
$100,000 and more: 74%
****
Asked of those who own stocks or stock funds:
How much do you currently have invested in the stock market?
Less than $5,000: 20%
$5,000-$10,000: 15%
$10,001-$25,000: 19%
$25,001-$50,000: 12%
More than $50,000: 25%
Don’t know: 9%
*
If you sold all of your stock market investments today, do you think you would make a profit, a loss, or break even?
Major profit: 26%
Some profit: 50%
Break even: 14%
Some loss: 4%
Major loss: --
Don’t know: 6%
*
If the stock market were to crash like it did in 1987, would your household financially suffer or not?
Yes, a lot: 5%
Yes, somewhat: 14%
No: 81%
*
Would you say most of your personal wealth or assets are currently in:
House/real estate: 30%
Cash/savings: 18%
Stocks/stock mutual funds: 14%
Personal items: 14%
Personal business: 7%
Other: 11%
Don’t know: 6%
****
Market Perceptions
Another factor in Orange County’s attraction to the market may lie in familiarity and sensation of safety. A third of residents say they are reasonably savvy about the market as do more than half of those who own stocks. And locals, particularly stockholders, are more convinced the market is relatively safe than are Southern Californians generally.
When it comes to the stock market, would you consider yourself:
*--*
Countywide Stockholders An expert 2% 3% Knowledgeable 32% 51% A beginner 29% 32% Not involved 36% 14% Don’t know 1% --
*--*
*
Would you say that the stock market is a relatively safe place, or a relatively dangerous place to invest money?
*--*
Orange O.C. Southern County stockholders California Relatively safe 41% 50% 29% Relatively dangerous 32% 28% 39% Depends 18% 21% 18% Don’t know 9% 1% 14%
*--*
Sources: Times Orange County Poll, Times Poll
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How the Poll Was Conducted
The Times Orange County Poll was conducted by Mark Baldassare & Associates. The random telephone survey of 600 adult Orange County residents was conducted March 8-11 on weekend days and weekday nights. The results were statistically weighted to reflect the geographic distribution of county households. The margin of error for the total sample is plus or minus 4 percentage points. For subgroups, such as respondents with investments in the stock market, the margin of error is larger. While all respondents were guaranteed anonymity, some agreed to be re-interviewed for news stories.
