If you sell stock now, you'll likely sell low

Volatile market, reacting to fear, is bad setting for a bailout, experts caution

July 13, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

At 9:56 a.m. yesterday - just 26 minutes after the New York Stock Exchange's opening bell - the Dow Jones industrial average had fallen 171 points. Within an hour, it had climbed 209 points, only to slide 244 points by 2:50 p.m. At 4 p.m., when the stock market mercifully closed for the day, the Dow ended its wild ride 117 points lower than where it started.

It has been gyrating that way for weeks and giving investors headaches. With all of the volatility, what are investors supposed to do?

"Not panic," said Douglas G. Ober, chairman and chief executive of Baltimore-based Adams Express Co., a closed-end investment fund. "To get out now is probably a mistake."

Ober said he believes there are "incredible values out there," and investors should be looking for them.

He likes blue-chip companies such as General Electric Co., International Business Machines Corp. and Intel Corp., all of which have been beaten down by the market's slide.

"These are great companies that aren't going to get sucked down into the maelstrom of WorldCom and Enron," Ober said. "We are being very picky, but we are picking and choosing some things that we think make sense to add to the portfolio."

He isn't the only expert who believes investors should keep the faith in stocks.

"It is a terrible time to panic out of the equity market," said David L. Donabedian, portfolio manager at Atlantic Trust Pell Rudman, a private wealth management firm in Baltimore. "We are just at an extreme now, the pendulum has swung toward fear."

Investors should have portfolios that are diversified between stocks and bonds, Donabedian said. They should also invest in companies that operate in a variety of sectors of the market instead of just one or two.

"In this environment ... it is important to own the highest quality companies in all of the major economic sectors," he said. "I don't think it is time to be doing dramatic shifting [by] ... increasing exposure or decreasing exposure in any one area."

Investors considering pulling out of the market shouldn't do it, said James P. Dunigan, chief investment officer at PNC Advisors in Philadelphia.

The only way an investor should bail out is if he can predict with certainty when the volatility will end and the market will start rising.

Knowing when to "get back in is not easy to do, given the fact that the rebounds from the bottom are swift and significant," Dunigan said.

He believes investors should own securities that will make it easy for them to rest at night:

"You have to sit down and say, `What do I really want in the long term now that I know what stocks can do?' Rebuild the portfolio with quality stocks and mutual funds with an eye for the longer-term objective."

The only reason an investor should keep his money out of the market is if he will need it in the next six to 18 months, Dunigan said: "Any time you need money ... you shouldn't have it in the market."

But sticking with stocks hasn't been easy. The Dow lost 694.97 points this week alone - a 7.4 percent drop - and it is down 13.34 percent for the year.

Other widely tracked indexes have fared little better.

The Standard & Poor's 500 stock index, which gives one of the broadest measures of the market's performance, declined 6.8 percent for the week and is down nearly 20 percent for the year. The Nasdaq composite index, which is heavily weighted with technology stocks, dipped 5.2 percent and is down nearly 30 percent for the year.

"It is forcing people to seize up, freeze up," said Michael Clark, head of global equity trading at Credit Suisse First Boston in New York. "When you have this kind of lack of clarity, it is very hard to judge what you are putting on the table."

Donabedian said some investors have "thrown in the towel."

What has shaken them is a daily barrage of news of shady accounting, bankruptcies and corporate executives receiving huge bonuses and stock options after ruining their companies.

"If it is not [news about] bribery, it is too many stock options," Ober said. "Everybody is just very nervous about this market. The slightest thing will turn it ... down. It is not real good."

Even if there is good economic news or a company announces strong earnings, investors pay little attention, Ober said.

"Nobody cares about the good news," he said. "It is doom and gloom everywhere you turn. It is hard as hell to turn that around. All we need is another event ... like 9-11, and it starts all over again."

Predicting an end to the market's volatility and the depth of the decline is difficult, but some experts see hopeful signs.

"I think the ... risks are getting lower," Clark said.

One positive is that technology stocks aren't falling the way they used to.

"Technology led this meltdown," Clark said. "It is showing the most stability now."

But a key to reviving the market and cooling off the volatility is rebuilding investors' confidence, experts said.

"Once some of this [corporate scandals] gets off the financial pages ... and to the extent somebody receives some jail time, that could restore investors' confidence," Dunigan said. "You are probably through the summer before some of those issues get off the front [of the financial] pages."

This will likely mean more tough weeks, experts said.

"More than ever, the markets are being moved strictly by emotions, which by their nature are more volatile than facts," Donabedian said. "There is no statistic, no market that you can point to and say, `This will cause the bottom.'"

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