Local investors stay the course

By Glenn Scott
Advertiser Staff Writer

The Federal Reserve Board's decision to drop its prime lending rate another half-point yesterday surprised stock markets, but Gordon Ching took the news in stride.

Retired engineer Gordon Ching says the markets won't take off yet, but believes they will eventually. He researches data on companies and discusses investment strategies with others. Deborah Booker • The Honolulu Advertiser

Even as many stocks shot up yesterday, Ching offered this measured analysis: The markets will come around eventually, as they always have. But not yet.

"The market won't take off from here," said Ching, 58, the president of the statewide chapter of the National Association of Investors Corp. He saw the Fed's move as a bid to boost sagging consumer confidence until corporate earnings improve.

Meanwhile, Ching and others say that although market losses have been difficult, they have not often been life-changing. In the larger picture, observers also suggest that market losses seem to have had little immediate affect on the state's economy.

A retired engineer from the Pearl Harbor shipyards, Ching said the steep decline in tech stocks has been roughest on older investors who didn't rid their retirement portfolios of the risky stocks that have led the decline.

In some of the worst cases, he said, retirement funds have lost two-thirds of their value.

"It's been gut-wrenching for some people," he said. "They're just going to have to wait it out. But even if it continues like this for another two years, they'll survive."

For investors of all ages, coping with declining stock market values has forced shifts in expectations, if nothing else. Two years ago, for instance, Michael Moon was plunging profits into emerging tech stocks and dreaming of the day when he'd turn his gains into a generous down payment on a house.

If he was caught up in the high-stakes game of high-risk stock trading, of course, he wasn't the only one in Hawai'i in the habit of watching tech stocks turning 25 percent annual gains.

But Moon had seen an investment crash once before, and he needed little prompting as the Nasdaq index began its long and bruising slide last year.

He bailed from the risky business of buying and selling tech stocks, took his remaining profits and adjusted his dreams.

Rethinking strategies

Like many others around the Islands, Moon said the stock market declines haven't forced drastic shifts in his lifestyle, but market shocks and volatility have forced him to rethink strategies and to rededicate himself to patience.

"Since the market went down, I'm a lot more leery," says Moon, 28, a district sales manager for AT&T Wireless. "I thought 18 months ago the market was volatile, but that was nothing compared to today."

Moon had another motive to change when his wife, Kimberly, gave birth three months ago to their daughter, Alanis. He still invests and still intends to buy a home, but the game is different now. He looks for safer stocks likely to grow steadily over the long term, just like their daughter.

"In 20 years," he says, "a little bit of money could go a long way for her."

Unlike Moon, dentist Chad Kawashima of Honolulu has not given up on tech stocks.

Kawashima, 28, admits he jumped into the tech spree too late last year, just as prices began to drop. "I really caught the brunt of it," he said.

The result: After losing about half of his initial investment, he had to sell a few shares of stock this week to pay income taxes. Despite that, Kawashima, who is single, intends to remain aggressive, noting that the current low prices offer excellent opportunities over the long haul for those willing to accept some risks today.

"I know I have time," said Kawashima.

Making adjustments

Patrick Leahy, on the other hand, knows he wants to maintain a safe but steady strategy as he looks ahead at retirement five to seven years away. A vice president for First Insurance Company of Hawai'i, the 56-year-old Leahy said he lost about 15 percent of the value of the mutual funds in his 401(k) plan over the past nine months, but he isn't panicking.

"I'm sort of an optimist, and I've made some adjustments," he said.

In January, Leahy took steps to safeguard his retirement account, moving his mutuals from growth funds into balanced funds. He also rid his portfolio of shares of Dell, Amazon and Lucent, but kept Microsoft, AOL and Cisco, figuring they will hold value under conventional measures.

Leahy, notably, is not getting out of the market.

"My sense is, I'm a long-term investor," he said. "Over time, it's going to come back. In the long term, it's better to be in the stock market."

Hank Wong, chief economist at City Bank, agreed that market losses don't seem to be affecting the state in obvious ways, though there could be some short-term implications for retailers and others.

"If you were planning to buy something or planning to retire, you might have to put that on hold," he said.

For Wong, the question is whether the declines in the market could become one of several troubling indicators that could combine to slow the state economy, which he predicts will grow from 2.3 percent to 2.5 percent this year.

"It will be a little slower than expected because of all these things," he said, mentioning slow Mainland growth, a flat Japanese economy, the California energy shortage, stock market drops and public teacher strikes.

Home sales steady

As for whether market losses might constrain Mainland buyers from the current trend of buying real estate, especially on the Neighbor Islands, Robert Cartwright of Whaler's Realty in Ka'anapali concedes that brokers on Maui have "all been a little pensive."

But he hasn't found evidence that sales have changed. In fact, Cartwright said he recorded the same number of sales of new homes during the first quarter this year as in 2000.

For local buyers, he said, dropping interest rates are countering the negative effects of market losses.

And for Mainland buyers seeking vacation homes, who make up three-quarters of the market, most weren't wrapped up in risky investments to start, Cartwright suggested.

Moreover, because most buyers in recent years have paid with large proportions of cash, they aren't leveraged with debt and can ride out drops in the stock market.

Like Wong, Cartwright worries more about other potential problems, particularly the energy shortage in California, the state that supplies about half of Maui's real estate buyers.

"We'll have to see how that's managed," he said.