Lone Riders Hang On to Bucking Market
On Monday, they waited out the biggest point drop in U.S. stock market history. But on Tuesday, many of America’s small investors, like Kiya Horne, jumped in to buy stocks in a historic frenzy.
“It’s a little scary, but it’s kind of a rush,” said Horne, 30, a nurse who drove from Cedars-Sinai Medical Center on her lunch hour to a downtown Los Angeles brokerage to buy shares of Intel Corp. “I just hope I can still get the price I wanted.”
In a major vote of confidence in America’s economy and the financial markets, Main Street went on a bargain buying spree Tuesday, flooding phone lines and online computer systems at brokerages and major mutual funds. The surge in individual investor buying was key to a 4.7% advance in the Dow Jones industrial average Tuesday, with record-smashing trading volume.
It was an extraordinary show of faith, analysts said, a testament to individual investors’ increasing sophistication and importance in the nation’s financial markets.
“Individuals buy for the long-term story of a company these days. They don’t panic as much,” said Steve Chanecka, president of Informed Investors, a Sacramento firm that educates investors. “They saw that people who got nervous and sold in 1987 really got creamed. They know that if underlying currents are positive, you want to hold on or buy more.”
However, with phone and computer systems overloaded, most investors were quickly frustrated in their attempts to buy or sell. Some moaned that long phone waits were costing them thousands of dollars, with stock prices moving so quickly. Others rushed to the nearest offices of local brokerages to try to make their trades in person.
An anxious Max Zollman, 66, drove to a Charles Schwab & Co. office to buy stock after he was unable to get through to his broker. Like many investors Tuesday, Zollman said he had learned a lesson after the market crash of Oct. 19, 1987, when the Dow declined 22.6%, or 508 points.
“I bought stocks the day after that crash and made a bunch of money. I wanted to do that again today,” said Zollman. “I’ve been calling all morning and can’t get my broker on the phone.”
Zollman wasn’t alone.
U.S. mutual funds reported record call volumes that were double the pace of a normal day, with more cash going into funds than going out. Cash inflow to mutual funds was a complete reversal from Friday and Monday, when an estimated net $1.6 billion was withdrawn from stock funds, according to Trim Tabs Financial Services Inc., a research group that tracks funds.
“We even had people who called in to sell and then called back and reversed their decisions,” said Nancy Fisher of Putnam Mutual Funds Corp. in Boston.
Fidelity Investments, the nation’s largest mutual fund company, acknowledged that its systems were strained by the unprecedented volume of calls. Fidelity has a large discount-brokerage operation and an Internet trading system, which also were affected.
Monday’s volume at Fidelity reached 700,000 calls, an all-time high, spokeswoman Anne Crowley said, and Tuesday’s volume, though not tabulated as of late evening, appeared on track to equal or exceed that record.
“Phone volume picked up considerably in the evening Monday when people got home from work, and that may happen again on Tuesday night,” said Crowley.
By Tuesday afternoon, investors had put more money into Fidelity’s stock funds, especially into international stock funds, than they took out, she said.
At the Vanguard Group, executives called in some of their “Swiss army,” about 1,000 employees who don’t usually answer phones but are trained to do so, to handle increased calls, said spokesman Brian Mattes.
Meanwhile, full-service brokerages like Merrill Lynch & Co. opened early and extended hours late in the day to answer investor phone calls that were double or triple the regular volume.
Max Hampton, a broker at Merrill Lynch in Newport Beach, said the crush of orders was so large that brokers had to use a backup system of taking orders manually and wiring them directly to the New York Stock Exchange. That’s a system it hasn’t used since it set up its computer system nearly six years ago, he said.
Online trading over the Internet became difficult at many firms.
“It was controlled chaos,” said Bob Reed, an executive vice president of Jack White & Co., a 24-hour discount brokerage that added extra staff to work round the clock. “We had one small glitch with online trading, but for the most part, things worked well today,” he said.
E-Trade of Palo Alto executed double the number of normal trades, even though some investors reportedly had trouble signing on.
“There was an avalanche this morning. Everything was pent-up demand, and it hit everyone, even us. We were slower than normal,” said Christos Cotsakos, E-Trade’s chief executive officer. “People made trades and then were calling back trying to get confirmation. The channels were jammed everywhere in the industry.”
At discount brokerage Charles Schwab in San Francisco, phone systems were running “considerably” slower, with waits of more than 30 minutes due to three times the typical number of phone calls, said spokeswoman Tracey Gordon. Some investors complained they couldn’t get through for hours.
“People can jump in a cab or get in a car and go to one of our branches,” Gordon said Tuesday. “We are experiencing slowdowns, and that can be very frustrating.”
Laguna Niguel resident Wayne Corey was more than frustrated, he was hopping mad by the time he fought traffic for 30 minutes to get to a Charles Schwab office. He had not been able to get through on the phone to his broker since Monday afternoon.
“A half-hour is a very long time in this market,” said Corey, who estimated he lost the opportunity to make $8,000 because of the overloaded phone lines.
Acupuncturist Karen Hentoff, 43, waited anxiously at Charles Schwab in Los Angeles for confirmation that a trade she had placed earlier had gone through. She had tried all day to get online, with no luck.
“I’m buying stuff I know at a good price,” she said. “I’m not sure what’s happening in Hong Kong, but I expected a 10% market correction, and that’s just what it’s done.”
Hoa Nguyen, a 41-year-old engineer in Los Angeles, said there was only one thing stopping him from buying more of the individual stocks he owns: “If only I had more money--I’d be buying!”
Times staff writers Thomas S. Mulligan in New York, Leslie Earnest, Patrice Apodaca and James S. Granelli in Orange County, and Jennifer Oldham in Los Angeles contributed to this story.
