Posted on: Sunday, April 20, 2003

Small investors prove resistant to 'stock-picker's market'

By Rachel Beck
Associated Press

NEW YORK — Wall Street pundits keep calling this is a stock-picker's market, suggesting the only way to make money right now is by buying individual stocks.

Try convincing average investors of that. That was the exact strategy that small investors used during the boom years that ended up backfiring in the market meltdown.

Now, three years into the bear market and after all of the nerve-rattling corporate scandals, the little guys are wary of buying single stocks. They would rather stuff their money into savings.

Still, it's not surprising that this is the push coming from Wall Street. The brokerage business is built on trading commissions, so they have to come up with ways to encourage investors to buy.

Not helping any has been the weak tone of the overall market. Major indexes have largely been at a standstill even though the war with Iraq is winding down, and there is little idea where things are heading next.

In fact, there is some concern that the market might get stuck in a trading range for a while, until the economy or corporate earnings show signs of really recharging, or maybe even longer than that. And although there might be some blips up, there is no guarantee that any strength will last for long.

But while the overall market limps along, some stocks have been surprisingly strong.

Take 3M, one of the 30 stocks in the Dow Jones industrial average. Its shares surged to an all-time high of $134.37 on March 21, while the Dow was about 30 percent below its record high of 11,722 reached on Jan. 14, 2000.

"You can make money in this environment," said Ralph Acampora, director of technical research at Prudential Financial. "But it's less about the market and more about individual stocks."

Acampora and others on Wall Street say that investors, both big and small, should be seeking stocks valued at reduced prices. The key is to buy in the dips and sell into surges.

That's easier said than done, especially for individuals who are still suffering from all of the bad mistakes they made during the stock-market boom and subsequent bust.

They bought high and sold low, failing to time the market right. Back then they also overinvested in individual stocks, forgetting to hedge their risks by diversifying their portfolios, and took chances on companies they knew nothing about.

The bear market wiped out much of their wealth, leaving retirees scrambling to recoup their losses and young people without any savings.

And only adding to small investors' unease has been all of the business scandals that have created new worries concerning whom they can trust in corporate America.

So now there's all this talk about the virtues of buying individual stocks. Investors are supposed to figure out what stocks to buy, when to buy them and then determine when to get out.

Sure, there may be money to be made, but there's as good a chance that there's money to be lost.

So far, most small investors aren't jumping into this stock-picker's market. They are sticking to the sidelines for now.

Instead, they are putting money into savings because they like knowing that their cash will be there when they need it.

"I've been working to get my individual investors mentally engaged again in the market," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "The truth is that it probably won't happen until the market rebounds, and there is nothing we can do about that."

There may be plenty of good stock buys out there. It's whether investors can stomach the risks.