Posted on: Thursday, March 15, 2001

Hawai'i investors wary of bear's bite

By Bob Golfen
Special to The Advertiser

Stock market investor Juan Rivero considers himself lucky.

Rivero's portfolio is down, of course, just like everybody else's in this surprisingly harsh bear market. But conservative investments and diversification have helped him avoid the big losses that many people lately have suffered.

"Obviously, everybody is poorer," said the 47-year-old Diamond Head resident. "We can say it (money) is just on paper, but it's real. It might not be money we need today to feed our families, but it's definitely money we'll wish we had when retirement comes around."

Across Hawai'i, investors like Rivero were rattled yesterday when the markets took another plunge. The Dow Jones industrial average fell 318 points to close at 9,972, the first time it has fallen below 10,000 since October. The woes in the U.S. markets rippled throughout Europe, driven by increasing concern about the faltering Japanese economy.

And the drops continued today, with Japan's main index in Tokyo opening sharply lower as investors were shaken by continuing bad news about the troubled banking industry in the world's second-largest economy.

While Hawai'i residents are determining just how much the drops are cutting into their investments, Honolulu financial consultant John MacGregor of Merrill Lynch noted that while the downturn may be frightening, investors need to keep their eyes on long-term goals.

"I think we can just look at these (bear) markets as a natural cycle," MacGregor said. "We were due for one."

He noted that investors had developed unreasonable profit expectations because of a decade of rising stock prices. Those investors who will come out ahead are the ones who are prepared for the inevitable bear market.

"The ones who are going to do well are those who stick with the fundamentals of investing: Buy quality, have a long-term approach and buy consistently over time," MacGregor said. "If you look at every bear market in history, it comes back.

"Those who are trying to time the market and trying to make a quick dollar are the ones who are going to suffer."

While the short-term effects of the markets' plunge for many investors are clear, they are less clear for Hawai'i's slowly strengthening economy. A strong Mainland economy and U.S. market have been key in helping fuel growth in the state, with visitors from the Mainland driving a record year for Hawai'i's tourism industry in 2000. Mainland buyers also have been snapping up local commercial and residential properties, fueling growth in those areas as well.

If prolonged troubles roil the markets and dampen consumer confidence, it could eventually dampen Hawai'i's economic outlook.

David McClain, dean of the College of Business Administration at the University of Hawai'i at Manoa, said the state's leading tourism industry could be affected if Mainland investors loss confidence and tighten their purse strings in the wake of losses and continued uncertainty in the markets.

"A Hawaiian vacation is a discretionary purchase for just about any household," McClain said. "When a household's wealth is down, such discretionary spending is curtailed."

Still, McClain noted that there hasn't been a noticeable drop in visitor arrivals despite the fact that stock prices began dropping in November. "My impression is that we haven't seen much effect yet," McClain said.

And according to Tom Herman, the acting general manager at Doubletree Alana Waikiki Hotel, the hospitality business has been humming along nicely. Herman said he has seen no significant decline of business in recent months.

Another recently expanding segment of Hawai'i's economy — the home-building industry — also could be affected by the market turmoil, McClain said, although an expected interest rate cut by the Federal Reserve Board when it meets Tuesday could balance out any investor spending pullback.

"Lower interest rates will make it easier to finance," McClain said. "On the other side of the coin, when we're talking about high-end homes, there may be some curtailment of activity.

"Buying a second home on Maui is certainly a discretionary purchase."

The Associated Press contributed to this report.