Financial advisers hopeful about future
Advertiser Staff and News Services
At times last week, the selling was furious and fueled by emotion. But by the time the stock market closed Friday, some calm had been restored.
The dramatic downfall of telecom giant WorldCom Inc. rocked financial capitals from Tokyo to Wall Street. Given the already fragile psyche of investors, the relative recovery of U.S. stocks was a small victory.
Still, the news shook investors and a market already mistrustful of corporate accounting following the collapse of Enron and revelations of bookkeeping irregularities at other companies.
In Hawai'i, however, several financial advisers said last week that their clients made no changes in their portfolios because of either the WorldCom debacle or other recent reports of corporate malfeasance.
"I'm a long-term planner and my clients are, from the outset, usually looking at a time frame longer than the immediate," said Judith Slawsky, a Honolulu certified financial planner. "I did have a meeting ... with someone else's client who was very skittish, but I reassured them that they were on the right track.
"But not one of my clients has called and said, 'Should we get out because of Enron and Tyco?' "
Loretta Poe, a certified financial planner with American Express Financial Advisors in Honolulu, placed the WorldCom revelations in the context of other hard-to-comprehend recent events that have raised anxiety levels across the country.
"We've got a lot of events taking place right now which are probably really new to us as a nation," she said. "How many more things will happen to us as a nation before we get really nervous?
"I think (WorldCom is) another example of people wondering, 'What else are we not being told?' "
Given recent events, Jerry Schwartz, of Arista Investment Advisors Ltd. of Honolulu, said investors are likely to proceed with caution in the future — a stance he says is appropriate.
"People need to be more responsible," he said. "What we're seeing is partly a result of a decade of a speculative attitude towards the markets, instead of an investment attitude. When you look at things as speculation, there's less of a direct sense of ownership. In the old days, people owned shares of corporations; they didn't just trade stocks."
Slawsky said the latest disclosures have likely set back the recovery. But she is still optimistic.
"I was hoping the market would be turning now for the summer," she said. "Interest rates would start to go up and the market would start to rebound. ... But I think the fundamentals are still good."
Some Mainland market analysts have suggested that with stock market losses already deep, one more heavy sell-off could mark the "final capitulation" — or last leg of the bear market. This is important, so the theory goes, because a new bull market won't emerge until the bear is killed off with capitulation.
Larry Wachtel, market analyst at Prudential Securities Inc., is a strong proponent of this theory. He said the market needs to take out the last seller in an avalanche of selling and flush out all the negativity.
"If we could just get this over with and destroy everybody's hopes, then at least we could start over from a decent psychological base," Wachtel said.
So far this year, each rally has been followed by several down days. The kinds of losses the major indexes have suffered indicate a very disillusioned investing public, said Hugh Johnson, market analyst at First Albany Corp. They have lost confidence in corporate America, in the accounting profession and in Wall Street analysts, he said.
But he said investors are being irrational in concluding that all of corporate America is cooking the books based on a handful of companies crossing the line.
Woody Dorsey, an expert in behavioral finance, says all these "negative things have ganged up" and can be equated with a "perfect storm," one that has exacerbated the unwinding of a record-breaking bull market that began in 1982.
His work shows that the rapid shift in investor psychology from blind optimism to fear-inspired pessimism is not unusual when bear markets are nearing an end.
"What happens at the end when everyone ends up selling is that the market can't go down anymore," he says. Dorsey says the final blowoff of the grizzly bear is almost on us. And that's why he is now doing what he has not done for quite some time: buying stocks.
Other worrywarts also say it's time to put money to work. Barton Biggs and Byron Wien, longtime bears at Morgan Stanley, say sentiment has deteriorated so much and stocks have fallen so far, that now might be a good time to start nibbling. Portfolio manager Larry Puglia at mutual fund giant T. Rowe Price also says valuations of large-cap stocks are now attractive.
USA Today, Associated Press and Advertiser staff writer Susan Hooper contributed to this report.
