Small investors remain wary of market
By Barry Flynn
Orlando Sentinel
ORLANDO, Fla. — With nearly unwavering resolution, John Little has followed a safe, certain course with his investments. For something like 25 years now, he has bought almost nothing but electric-utility stocks.
Oh, sure, there was the occasional episode a few years ago when he briefly succumbed to the temptations of a couple of technology stocks.
"I bought some after they plunged," Little, an Orlando furniture distributor, confessed recently. "And then they plunged some more. And like an idiot, I held on to them."
He reckons those indiscretions with Lucent Technologies Inc. and Ibis Technology Corp. cost him and his wife about $25,000.
Now, his remorse almost palpable, the 70-year-old Little says he will never again forsake his unbeautiful but reliable utility stocks for the long-shot hopes of easy money in companies he doesn't understand.
"We're always going to need electricity," he explained.
After three miserable years, stocks have enjoyed a powerful rally during the first half of 2003. But Little fits the pattern of many small, part-time investors these days: Having seen the market steadily erode their investments, they are reluctant to stick their necks out again.
Who could blame them? Last year the major stock indexes fell for a third consecutive year — a downward spiral that has erased billions of dollars in Americans' retirement accounts, savings and investments.
The so-called tech bubble — the huge run-up in stock prices driven by speculation in Internet and other technology stocks — exploded and destroyed with it many people's illusions about the ease of making money in securities.
Surprisingly, most individual investors did not abandon the stock market during that meltdown. Instead, they just got on with the rest of their lives and tuned out the carnage on Wall Street and in their investments.
For instance, investors took more money out of their stock mutual-fund accounts last year than they put in, but they did so for only the first time since 1988, said John Collins, a spokesman for the Investment Company Institute, a mutual-fund trade group.
Even then, the net withdrawals amounted to less than 1 percent of all the funds' assets in 2002, Collins said.
That suggests most people who invest in stocks through mutual funds — a huge and growing number of Americans — sat on their hands as their investments dwindled.
"Even though it was trying during the last couple of years, many ignored their statements," said Kate Warne, a market strategist at Edward Jones, a St. Louis-based brokerage firm. That's the approach taken by Carolyn Gale, a decorator and manager of the Drummond Interiors Ltd. retail shop in Maitland, Fla.
She figures that about $30,000 of her net worth has disappeared in the down market.
"I'm old enough to have seen the market go up and go down, go up and go down. So I'm just waiting for it to come back," said Gale, 62. Still, when it came time recently to invest a $55,000 lump sum, Gale put the money into an annuity, an insurance product designed to produce regular income.
Rather than individual investors like Gale, it has been institutional investors who have driven the market upsurge of recent months, said Lou Harvey, the president of a Boston-based financial services research firm, Dalbar Inc.
"As usual, the small investor is left out," Harvey said. " He's always late" getting into market rallies.
Another investor who got burned in the down market is Joe Lagennusa, 33, Southeast manager for Access Manufacturing Systems, a software reseller.
In the mid-1990s, he had all his retirement account invested in the stock of his then-employer, a big office-supply company, Lagennusa said.
"I'm 24, 25 years old, making decent money as a manager and wrapped up in the whole hoopla of the company," Lagennusa said.
But after the company's stock tanked, he said, "I think I had 3,500 bucks left when it was all said and done."
Also, back when the market was booming, Lagennusa invested a couple of thousand dollars on stocks he heard about as tips.
"Both of the stock tips ended up being failures," he said. Now, he has changed his approach. Instead of putting the bulk of his investments in one company's shares, Lagennusa switched his retirement money into a family of mutual funds.
But he still believes in the market long-term. "I'm very optimistic it's going to come back," Lagennusa said.
