Taking Stock of Situation, Investors Grit and Bear It

They’re more nervous. They’re more disappointed. They’re feeling less wealthy. And many of them haven’t experienced a stock market quite like this before.

Yet many small investors say they are steadfastly hanging on to their stocks despite Monday’s sharp market decline. And although some say they regretted not reducing their stock holdings a few weeks ago--before the Dow Jones industrial average’s losses worsened to nearly 20% since mid-July--they maintain they are in the market for the long haul.

“Are we getting more nervous? Yes,” said Larry Arnold, a Newport Beach-based attorney. “But we’re hanging tight.”

“I wish I’d sold earlier, but I’m not going to do it today,” said Nat Motta, a Pasadena retiree.

Such steadfastness from individual investors may again turn out to be a key force that could help stabilize the market after Monday’s 512-point, 6.4% drop in the Dow index. The bulk of the day’s selling appeared to come from large institutional money managers, who are under great pressure from clients to minimize short-term losses.

Ironically, some of the selling is being done by mutual funds that manage individuals’ money--more than $2.5 trillion in stock funds, in all. Analysts say some fund managers appear to be dumping stocks to raise cash, fearing that fund investors may soon begin cashing out of their fund holdings.

But it remains to be seen if individuals will indeed lose their cool and start selling in waves if the market’s decline goes far deeper or persists longer.

What’s worrisome is that the latest market plunge means many individual investors are showing losses in their stock portfolios for the year to date--a rare occurrence thus far in the 1990s, as the market has soared ever higher.

Analysts note that many individuals are relatively new to stock investing and have never experienced a true bear market, such as the last one in 1990, or a giant crash like the one in October 1987, when the Dow lost 22.6% in one day.

Thus far, stocks’ tumble hasn’t resulted in investors pulling large sums out of the market. Still, it has slowed their willingness to put new money into stocks. And it could reduce investors’ confidence to spend money on everything from vacations to home appliances.

“We were thinking about putting an addition on the house and getting the house painted. I’m not sure I want to do it now. It’s pretty depressing,” said Ronald L. Rembert, a mechanic from Long Beach.

But, so far at least, there has been little evidence of significant selling by individuals. Mutual fund companies on Monday reported net outflows from stock funds into money market and bond funds, but the amounts of money transferred out were described as “negligible.”

Meanwhile, Hewitt Associates, an employee benefits consulting firm that tracks how 1.4 million participants in company 401(k) retirement savings plans handle their funds, reports that substantially less than 1% of 401(k) assets shifted out of stock funds last week. Results for Monday won’t be available until today.

“Individuals seem to be getting the message that money invested in stocks should be invested long term,” said Monica Gallagher, a spokeswoman for the Lincolnshire, Ill.-based consulting firm.

But large mutual fund companies, such as Fidelity Investments and Vanguard--which already report increased call volume and nervousness--say they’re preparing for the worst. They’re canceling some meetings set for today and calling in additional employees to ensure they’re able to handle whatever comes up.

Nonetheless, individuals continue to declare that they’re long-term investors who are not easily shaken from a “buy-and-hold” strategy encouraged by their advisors and their increasing participation in 401(k)s and other retirement plans. Although many say they watch the market carefully--and certainly don’t relish seeing a good portion of their invested wealth evaporate--so far they refuse to move money around during a crisis.

“It [market volatility] is just like tornadoes or hurricanes. You have to wait it out and let them take their course,” said Mary Kaptur, a Los Angeles retiree. “I buy good companies and I hold onto them. I’m not going to panic. I never have.”

Michael Velez, a school administrator from Orange County, added that because he’s investing for long-term goals, he’s not only sitting tight, he’s contributing more to his accounts.

“We are not retiring for 20 years, so I am just going to let our money sit and keep up with our monthly contributions,” he said. “I am hoping that this money will be buying cheap shares, and the market will go back up later.”

Deadpanned Todd Murphy, co-owner of the Inn at Fawnskin, a bed and breakfast near Big Bear Lake: “I’m sobbing, but I’m not selling. If the market drops much more, we’ll probably start buying.”

Indeed, some individuals were already picking up stocks that they felt were hit too hard by the market decline.

John Damiani, a Los Angeles lawyer, called Monday’s sell-off “a great buying opportunity for long-term investors” as he picked up a couple hundred shares of one of his favorite technology companies. Still, he wasn’t expecting a quick rebound.

“Certain stocks will retain their value,” he said. “I think the market in general is headed much lower.”

Still, just as the skyrocketing market of a few weeks ago spurred some euphoria, today’s plunging prices are producing plenty of angst.

Christine Murray, a Pomona-based manufacturing production planner, noted that she and her husband plopped a substantial chunk of their assets into stocks just a few months ago.

“If we had a little crystal ball, we would have waited,” she sighed. Still, if anything, Murray plans to buy more shares, not sell.

“Our money is in there for 15 or 20 years, and history shows that it will go back up again,” she said.

“I’m disappointed,” added Pasadena retiree Motta, who previously said he wasn’t selling because he doubted that he’d lose as much to a market reversal as he would to capital gains taxes.

“I probably missed an opportunity to sell out, pay my taxes, get back in and still have a little money left over. But I’m not desperate,” he said.

Other individuals said they thought the market reversal could have a negative impact on the economy.

“I don’t have much invested, but I care deeply about what’s happening,” said Bill McCall, an Arcadia-based writer and substitute teacher.

“A lot of the people who are hurt by the market are going to be much more careful about their spending. I think that could affect everything,” McCall said.

Times staff writers Stuart Silverstein and Paul J. Lim contributed to this story.