Saturday, July 27, 2002

Local investors
feeling the pain

From the young to the
not-so-young, Hawaii
stockholders are rattled
by the market

By Dave Segal

Retired jeweler Jerry Corn, relaxing on a chair in Charles Schwab & Co.'s Honolulu office, said he's never seen anything like it.

The relentless bear market, which has dragged down major stock indexes to five-year lows this week, has shown few signs of relinquishing its stranglehold on investors.

"I've been a small investor for 44 years and I've never seen it so bad," said Corn, who will be 86 in September and has seen his portfolio decrease between 30 and 40 percent during the past two years.

"The selloff in 1987 was short-lived but this is a prolonged issue and I would be very hesitant to make any kind of prediction as to when we'll see a better time. But I think there are cycles and the cycle will eventually run its course."

For investors young and old, these have been trying times.

Gary Hiram, 42, production manager for advertising agency Ogilvy & Mather Hawaii, said he's seen his 401(k) shrivel and stocks decline that he bought for his 4-year-old daughter's college education.

"I keep putting money into my 401(k) and it's not going anywhere," he said while taking a break in the lobby of Honolulu's Topa Financial Center, formerly known as the Amfac Center. "I mean it goes somewhere but it's not escalating in value," he added.

Francis Cofran, 42, a commercial real estate broker, said he's hoping the market is close to a bottom.

"I think people are overreacting," he said during a break in front of downtown's Pacific Tower. "There's a lot of corruption. It's kind of a wait-and-see attitude. That's how I look at it. I'd be a little more concerned if I was retiring in the next 10 years. But I'm fairly young so it's pretty much just wait and see."

Investors, who were used to instant gratification during the go-go years of the late 1990s, these days are having their patience tested.

The Dow Jones industrial average, which peaked at 11,722.98 on Jan. 14, 2000, is off 29.5 percent after closing yesterday at 8,264.39. The broader Standard & Poor's 500 index, which hit an all-time high of 1,527.46 on March 24, 2000, is down 44.2 percent after ending yesterday at 852.14. And the technology-heavy Nasdaq composite index, which soared to 5,048.62 on March 10, 2000, has plummeted 75 percent to yesterday's close of 1,262.12. So far this year, the Dow is down 17.5 percent, the S&P 500 is off 25.7 percent and the Nasdaq is behind 35.3 percent.

"(In the earlier days) we were investors and not day traders," Corn said. "I think the market is badly damaged by day traders. They're not investors, they're day traders. And they dominate the market today. That, I think, is the problem. I find it difficult today to apply my past experiences of 44 years to this type of market."

Colleen Blacktin, branch manager of Charles Schwab's Bishop Street brokerage, said many investors have found themselves unable to stomach this gut-wrenching downturn.

"From our clients' point of view, there are the people who are paralyzed, and there's that percentage who have thrown in the towel," she said. "They just want to sell everything and they park it in a money market fund and leave it. Those are the people that probably couldn't assume the risk that they thought they could at the time the market was going up.

"And you do have the people who are throwing their hands up and saying, 'You know what. I do need more diversification.' And those are the people who are coming in and lowering their risk and getting that asset allocation in place. I think those people are the smartest. But you do have people that are panicked, too."

Corn, who besides the day traders blames Federal Reserve Chairman Alan Greenspan for the current malaise, said Greenspan's continuous rhetoric about the market being too high and his keeping interest rates high for too long have taken their toll.

"Now interest rates are far too low," Corn said. "Today you get little or nothing for your money in deposits. Pretty soon the banks are going to charge us to safeguard our money. I renewed a CD the other day and all I got was 1 14 percent.

"The mortgage interest rates are supposedly at a 40-year low. I bought my first home in 1946 and the interest rate I paid then was 6 14 or 6 12 percent and mortgage loans today are down again to 6 and some point percent. So it's even more than a 40-year low."

Despite the prevailing doom and gloom, Blacktin said now is perhaps the best time to buy stocks.

"Wall Street has a way of swinging up too fast and then it will correct itself," Blacktin said. "This is an unusual time. It's just not a one-month correction. It's not like a bump in the road. This is a bear market and it's a difficult thing to live through. But I believe if you take the steps now to put together a good portfolio for yourself based upon your risk, you will in the long run be happy. But you have to have a long-term outlook of at least five years."

Hiram, the production manager, said that he hasn't been putting any additional money in the market recently except for his 401(k) contributions.

"But that's just due to the fact that I don't have a lot of disposable income," he said. "If I did, I'd probably buy some more stocks for my daughter."

"When I started buying stocks it was because things were going down," he added. "What I don't get is when people, now that they're seeing the stocks take a dive, are going to start buying up cheap stocks. How long are people going to wait before they start buying them up?"

Cofran, who has 80 percent of his assets in the market, actually has been buying recently.

"Some of the companies I invested in are still pretty solid and their philosophy hasn't changed," he said. "I think it's just the frenzy (now that is scaring away investors)."

Corn, the retiree, said he feels sorry for financial analysts because he doesn't think they can predict when the stock market will turn around. His best advice, he said, is to invest now when the market is down.

"You can only take comfort in the fact that if you're young enough and patient enough and involved in quality and in something that pays a little dividend while you're waiting for a return of good times, then it can be rewarding," Corn said. "And for those my age, if we're fortunate enough to outlive this condition and see some return, we'll benefit by it."

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