Depleted Investors Also Losing Nerve

Screenwriter Jason Squire is rewriting his script. So is the American investor.

For Squire, on the faculty at USC’s School of Cinema-Television, the fixes were relatively simple. After a recent week of triple-digit losses for the Dow Jones industrial average, Squire and his writing partner changed a major character in their action-adventure yarn from a hotshot trader to an unemployed victim of corporate America.

“In movies you have to reflect the sensibility of the times,” Squire said.

For American investors, however, altering their financial script hasn’t been as easy. Their story, spun from the stratospheric returns of the late 1990s, was supposed to have a happy ending. Early retirement. Travel. An estate, perhaps, to leave their children.

Instead, the tale has turned bitter and painful for many investors as they struggle with a new plot twist of quickly diminishing riches. A recession, terrorist attacks, and most recently a series of corporate scandals have ravaged the market highs of 2000. In fewer than three years, the Dow has lost more than a quarter of its peak value, while the Nasdaq has plunged by more than two-thirds.

On a superficial level, the reversal of fortune has recast everything from cocktail party conversation to future investment strategies. But on a deeper psychological plane, the stress on some investors has been so great that it has generated an unprecedented wealth of blame, recriminations and denial in their personal and professional lives.

“In the last two weeks, I’ve gotten more new clients than I would normally get in two or three months,” said James W. Gottfurcht, president of Psychology Money Consultants, a Los Angeles-based psychotherapy and executive coaching firm. “And it’s all due to the stock market.”

When the going got tough in recent weeks, about a fifth of investors got going on sticking their heads in the sand, according to financial experts. Some investors believe that with a properly diversified portfolio, a wait-it-out approach is a legitimate investment plan. But others admit they weren’t looking at their bottom lines because they just couldn’t bear to look upon the financial ruins.

Jenny Verhines of Marina del Rey, who deliberately avoids market news on the Internet, newspapers and television, won’t even open her quarterly statements. “It’s so depressing,” said the 40-year-old accountant. “Why would I want to open them up? It’s all bad. Just bad.”

Those brave enough to track their investments often wish they hadn’t. After ignoring her last batch of quarterly statements, Leanne Barney, a legal secretary who works in downtown Los Angeles, steeled her nerve to see her bottom line--it’s about $20,000 lower than it used to be.

“I’ll never be able to retire now,” said the 45-year-old San Gabriel Valley resident, only half-jokingly. “At least, not when I was planning to.”

Despite a one-day upswing Wednesday, the market shakeup has diminished the nation’s passion for stock crawl--the constant stream of updated stock quotes across the television screen. Financial news network CNBC has seen its peak ratings in March 2000 of 418,000 viewers a day plummet to a little more than 225,000 in April, May and June of this year.

‘It Felt Like Gambling’

It was only a few years ago that private investor Kim Brizzolara was a crawl-watcher, among other things, as she pored over Internet and television news of her considerable holdings. Although she held mostly traditional stocks such as General Electric, she finally succumbed to tech fever near the market peak and bought such high-fliers as Global Crossing, Lucent Technologies and JDS Uniphase.

“I was obsessed,” recalled Brizzolara, who serves on the board of directors for the Hamptons International Film Festival in New York. “I remember I was staying with my boyfriend’s parents in Nantucket one weekend and I watched CNBC for hours. It was insane.

“It felt like gambling, like you had some control over this, and you were winning,” said the Manhattan resident.

Brizzolara estimates she lost “hundreds of thousands of dollars” and her once constant stock watch habits fell faster than shares of WorldCom Inc. “I check my stocks once a day at most now and if there’s been a bad day, I won’t look at the gain or loss column,” she said.

Avoidance of relentlessly grim news isn’t surprising, according to Maury Elvekrog, a psychologist and investment manager in Bloomfield Hills, Mich. “People tend to conclude their experience is reality,” said Elvekrog, a market investor for 47 years. “If you buy a stock at a certain price, that makes it seem like that’s what the stock is worth, especially if you paid a lot of money for it. So when the price comes down, you think, ‘This can’t be. This isn’t reality. I’ll close my eyes and things will come back to normal.’ ”

But the compulsion to watch the financial train wreck--especially one’s own--can be as powerful as the desire to turn away, according to financial experts. Since the downturn, some viewers are newly transfixed to television financial news as never before, and others suddenly can’t chat enough about the decline. John Nofsinger, an assistant professor of finance at Washington State University, noticed such a change in his administrative assistant, who is close to retirement age.

“She has talked about the stock market every single day for the past month,” said Nofsinger, author of the recent “Investment Blunders (of the Rich and Famous) ... and What You Can Learn From Them.”

“ ‘Why is it going down? When will it come back up?’ She’d even talk about specific stocks and she’d never mentioned those even in the ‘90s.”

Reversal of Fortune

Anyone other than Wall Street types talking stocks at the office was a rarity only a decade ago. But as 401(k) retirement plans became more common in the workplace and as the bull market of the late ‘90s began taking off, more than 60% of Americans eventually became acquainted with the once esoteric world of investing, according to Nofsinger. They devoured stock news from newsletters, radio and television and learned to distinguish a P/E ratio from an index fund.

“It was a huge socialization process that really turned investing into almost a sport,” said Nofsinger. “Instead of talking about the new football halfback this season, people were telling stories about the new hot product coming out.” But such talk, so common at backyard barbecues and cocktail parties only three years ago, has all but stopped. The bright, cheery and oftentimes self-congratulatory chatter has been chewed up by forecasts of gloom and doom.

Now battered investors are doing more than just complaining, they’re pointing fingers as well.

In fewer arenas was the blame game more fierce than divorce court, according to family law attorneys. Financial woes are always on the short list for overstressing a relationship, but the stock market tumble has pushed, or at least accelerated, some couples to divorce, say attorneys. The typical dynamic, they say, has the husband stubbornly refusing to sell stocks, while the wife screams “I told you so.”

“It gets pretty ugly,” said Robert J. Nachshin, a family law attorney in Los Angeles. “You get one spouse shouting, ‘You something, something idiot, you should have sold Qualcomm or Broadcom or Microsoft years ago.’ ”

Meanwhile, as the accusations fly, the couple’s portfolio continues to shrink, leaving a lot less to split. “If you’re the income earner, now is a great time to get divorced,” added Nachshin.

Diving stocks have strained friendships as well. During the bull market many “insiders” passed along hot stock tips that ultimately didn’t pan out. Jeff Lubs, a math and science teacher at a Manhattan Beach middle school, finally bought a telecom stock after being badgered by a friend, whose husband worked for the company.

“Every time I’d see her she’d say, ‘It’s going up and up, you’ve got to jump in,’ ” said Lubs. “So, finally, I did.”

Shortly after buying Irvine-based Incomnet at $23 per share, the plunge began. Within a few months, it dropped to $8. A few more months, it was down to $1. Today, the stock is worth around a penny per share, he said.

“She was like, ‘Oh, sorry about that,’ ” he said. “I don’t say a word about it.” While Lubs lost virtually his entire $1,200 investment, the friendship has endured.

In the search for someone to blame, the corporate scandals have suddenly provided investors a real, if convenient, villain. The average investor, no matter how much research he did, was never going to uncover the deceit and malfeasance occurring in some of the nation’s largest businesses.

“What investors are really saying is they’re not to blame,” said Nofsinger. “They’re trying to absolve themselves of any guilt.”

A Bubble Bursts

But most investors registered the bulk of their losses before the scandals at Enron, WorldCom and Adelphia broke, say financial experts. Greed got the better of investors who forgot about their risk tolerance years ago and now have only themselves to blame.

“We were riding the dot-com bubble and many investors got speculative fever,” said Patrick Gregory, an assistant professor of finance at Bentley College near Boston. “They didn’t do the hard-core analysis you need to do ... as a result, they got burned.”

While the Women’s Evangelical Progressive Investment Club (WE PIC, for short) has borne its portfolio losses like everyone else, it could have been much, much worse, according to club president Margaret Nead. In 1999, a club member urged the admittedly conservative group--all over 40 church-going women from Orange County--to “buy, buy, buy” tech stocks, recalled Nead. The strategy was voted down at the club’s monthly meeting spot, a Coco’s restaurant in Irvine.

“We didn’t really squabble about the proposal,” said Nead, a 50-year-old preschool teacher from Orange. “I guess you could say we got passive-aggressive. We were just silent.”

Today, only one of the club’s nine stocks are in the tech sector, she said. And the tech-backer eventually led a slow exodus of members from the club--she was one of half a dozen who left when the market started declining. The club, which collects $25 per month from each member for its investment fund, is now down to 10. The declining market has just taken the fun out of investing for some in the group, said Nead.

Indeed, some financial experts say the scars of this roller-coaster ride may already be keeping investors from a good buying opportunity. This market is a reverse mirror of the bull market of the ‘90s, contend some. “Irrational exuberance,” as Federal Reserve Chairman Alan Greenspan has noted, may have overblown the bubble, but irrational fear may keep this one depressed longer than is warranted. Inflation, unemployment and interest rates are at or near historic lows, and in spite of the rash of scandals, corporate America is still making profits.

Investors have “seen their 401(k) reduced to a 201(k). They have been ground down and worn out by this market,” said Victoria Collins, a certified financial planner and author of numerous money management books. “But there is [still] a disconnect between Wall Street and Main Street.”

But if the markets dive much deeper over the next couple of years, other experts think this generation might react just as their parents and grandparents did to the financial calamity of their day.

“The generation from the Great Depression ended up putting their money under their mattress,” said Nofsinger. “And though I think we’re a ways off from it, we may see some investors of today permanently put off from the markets and opt to park their money in an ordinary savings account.”