Investors behaving as traders Rapid buying, selling could hurt market


November 15, 1998|By Bill Atkinson

ROBERT Goodman has been a student of the stock market for more than 30 years, and he's noticed a change in investor behavior that's making him nervous.

Goodman, senior economic adviser at Putnam Investments Inc., the giant Boston-based mutual fund company, says long-term investors are turning into high-strung traders, who flip stocks as fast as a McDonald's employee flips burgers during the lunch-hour rush.

The change, which he detected through conversations with brokers and mutual fund representatives, stems from the bombardment of bad news ranging from the White House sex scandal to imploding economies in Asia and Russia, he said.

"People with long-term horizons feel that they have lost control," said Goodman, who is known as "Dr. Bob" at Putnam. "That is a frightening feeling. They are now thinking like traders -- 10, 15, 20 days out."

Goodman says this rapid-fire buying and selling could slow the current rally.

"There is not a mass selling or a liquidation of funds, but they [investors] are not buying anymore," he said. "When they are called by their financial adviser it's, 'I have enough stock.' "

This behavior differs from three corrections when the market fell sharply in 1996, 1997 and this year.

"In each of those corrections, there was a fairly quick snap back," he said. "Investors were very savvy."

Goodman, who frequently appears on business talk shows on CNN and CNBC, blames the media, which have gone mad for business news.

When the White House sex scandal exploded with the release of the Starr report in September, CNN covered the story and simultaneously charted the Dow Jones industrial average's progress with a small box that appeared on viewers' television sets.

"There is no question about it, the media sort of forces it," Goodman said. "You listen to the stuff that comes out on the commentary and it whips the client this way and that way. They don't know what to do, they don't have a big picture. It doesn't matter if it is real or not, it feels real and that is all it takes."

Goodman's advice for investors? Settle down and don't overreact to the talking heads or the monthly statistics on homebuilding and employment.

"Take year-over-year numbers and take a longer view," he said. "You get to see the trend and it gives you a much better picture."

Goodman, who was chief economist at J&W Seligman & Co., a New York mutual fund company, and had stints as an economist at Citibank and the Federal Reserve Bank of New York, has been a bull most of his career. Though he worries about investors' mind set, he sees the stock market marching higher.

He's optimistic because inflation and interest rates are at low levels, the federal government is running a budget surplus, and the economy is growing.

Throw into the mix a technology boom and it creates an "amazing set of economic conditions," Goodman said.

"We have this glorious period. If you came down from Mars and were asked where the stock market would be, you would probably put it up to much higher levels."

"At this stage we have everything going for us," he continued. "The trend of the equity markets will reflect these fundamentals. The trend is up."

Not even predictions of a year 2000 disaster bother Goodman.

He figures 1999 will be dominated by fears that planes won't fly and ships won't float because of malfunctioning computer systems.

"They will be interviewing people in Colorado in their tunnels," he said. "People are going to find out all along that it is not the technical nightmare everybody has been expecting."

So what should investors do besides tuning out the daily noise?

Hunt for companies whose stock prices have been beaten down, and invest in them monthly over the next year or so, Goodman said.

"I want my positions long before the market turns up," he said. "When it does, it will be volatile on the upside just as it was on the downside. We will be looking at billion share days back-to-back-to-back."

Goodman realizes his advice may fall on deaf ears since many investors are acting like panicked traders.

"It is useless to talk to a trader," he said. "You can't give a trader advice."

Pub Date: 11/15/98

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