Wall St. Rebounds, but Will It Last?

Many Southland financial advisors went shopping Monday, joining other investors who added beaten-down technology, growth and cyclical stocks to their portfolios.

Santa Monica financial planner Brent Kessel invested $5 million for one client early in the day, buying a diversified mix of small-company, value and technology stocks, and mutual funds to supplement the investor’s long-term portfolio, which was already heavily weighted with large-company stocks and funds.

“It was great. We got everything for about 6% less than we would have before last week,” said Kessel, a fee-only planner who manages about $65 million for individuals.

Although some advisors choose to ease into the market when stock prices are volatile, Kessel said he prefers investing all at once, whether the market seems high or low. He assumes the market is going higher in the long run, so that the earlier the client is invested, the better, he said.

“The only time I’ll dollar-cost average is when someone is really prone to second-guessing themselves,” Kessel said. “Because 75% of the time, the market goes up. Statistically, your best choice is to go in all at once.”

Like other advisors interviewed Monday, Kessel said he was not deluged by calls from nervous clients, even after Friday’s 9.7% drop in the Nasdaq composite index and 5.7% decline in the Dow Jones industrial average.

Kessel said he received one call in recent days from a nervous client, a retired investor who simply asked for reassurance. Kessel’s clients are invested in a diversified portfolio of stocks, bonds and cash.

Asset Allocation Message Illustrated

Richard A. “Rocky” Mills, branch manager at Sutro & Co. in Woodland Hills, said last week’s downdraft seemed to have convinced customers of what advisors had been telling them for years: asset allocation matters.

“For the last year and a half, everybody wants to go gung-ho into tech,” Mills said. But Sutro advisors insist clients have cash, bonds and stocks from a variety of sectors--diversification that some clients resisted as the market seemed to be rewarding only highflying growth and technology, he said.

Even so, Sutro advisors have accommodated their clients somewhat, allowing them to “bite off a little more” by increasing their portfolios’ technology weighting to 40% to 45% of the total value, versus the 35% tech weighting in the Standard & Poor’s 500 index, Mills said.

However, the firm avoids “dot-coms” with no earnings and huge debt, looking instead for stocks of companies that have little or no debt, that are leaders in their fields and that have projected earnings and sales growth of at least 20% a year for the next five years.

“The Ciscos, the Microsofts, the Oracles . . . those companies will weather these kinds of storms,” Mills said. He said clients and advisors were buying those companies Monday.

Market Flexibility Sought for Clients

Indeed, the major tech stocks were the ones that led the rebound Monday.

Nancy Langdon Jones, a financial planner in Upland, likes big tech stocks as well. Friday, she started buying QQQ, the nickname for “Nasdaq-100 Trust” and its ticker symbol. The trust is a tradable basket of securities representing all the stocks in the Nasdaq 100 index, which includes the largest stocks in the Nasdaq composite.

Jones includes technology funds among the mutual funds she buys for her clients’ long-term portfolios. But she purchased QQQs to supplement those holdings; because the QQQ can be traded during the day, Jones can exit quickly if another technology sell-off materializes.

Financial planner Randi Levenbaum of West Los Angeles is looking for bargains in other areas. Levenbaum, who specializes in middle-income clients, treated last week’s market turmoil as “the Nordstrom’s half-yearly shoe sale” for “old economy” and value stocks.

One purchase: Procter & Gamble, which fell by more than half from its 52-week high of $118 after an earnings disappointment last month. On Monday the stock jumped $6 to $69.

“It’s a solid company and it’s a good opportunity to take advantage” of the lower price, Levenbaum said.