Don't panic, area brokers urge

Most customers await market developments

February 28, 2007|By Tricia Bishop | Tricia Bishop,Sun reporter

As the stock market fell and concerns grew yesterday, all was quiet at many financial planning offices.

"I'm the loneliest guy in town," said Kenneth R. Solow, chief investment officer at Pinnacle Advisory Group in Columbia.

Solow's office helps 500 families invest their money, but as the news screamed of stock plunges and worst single-day performances since 2001, just two of his clients bothered to call in for reassurance.

"The fact is that a one-day move tends to be smoothed out over a four-week period," said Solow, who has been counseling clients to expect a drop. "We've spent the last three or four months telling our clients that what's been going on in the market is aberrant in terms of low volatility and they should expect higher volatility. We're like broken records."

Around the region, brokers and planners acknowledged that yesterday's drop was significant, with the Dow Jones industrial average losing 200 points in a single minute around 3 p.m. and ending the day down 415 points to close at 12,216 - a 3.3 percent decline. But they also offered a unified message: If your portfolio is diversified, you're in good shape. And even if it's not, don't go to pieces.

"If you built the portfolio right ... [with] the right mix of investments, if that's the case, then you don't need to panic," said David Berman, a certified financial planner with Berman McAleer Inc. in Timonium. "And most importantly, even if you're going to panic, don't take action because of it. ... When people are panicky is not a good time to take action."

Berman recalled August 2002, when he said the country saw the second-largest move from stocks to bonds in history, fueled by the mess of a market that followed the dot-com bust. But as soon as investors made the supposedly safer switch, markets did too, heading into recovery over the next 18 months and leaving the bond-jumpers behind.

"If you called [Warren Buffet] today and asked, `Do you plan to do anything?' I honestly think you would have to cover your ears, he'd be laughing so hard into the phone at the notion, at the idea," Berman said. "It would be preposterous."

There is cause for worry if a portfolio is overweight with foreign stocks, many said, particularly those from China. Some analysts blamed the Chinese markets, which saw a massive sell-off yesterday, for triggering similar action in the United States.

"Investors should check their portfolio for exposure to the health of the Chinese economy, but that is something they should do regularly," wrote Vitaliy N. Katsenelson, a portfolio manager and Colorado-based investment blogger.

He saw the U.S. drop as an overreaction that links too tightly China's economy with the U.S.

Michael E. Kitces, Pinnacle's director of financial planning, said that at most, the day should be a learning experience.

"I think this ends up being a good time to perhaps take a step back and evaluate what their portfolio really looks like," Kitces said.

His office pointed out that yesterday's 3 percent drop was nowhere near the 20 percent drops that stock portfolios experienced during 1972-1973 and 2000-2002.

"If things got ugly for several days in a row, eventually rational people get concerned," he said, "but one-day events like this don't really prompt a flood of phone calls."

tricia.bishop@baltsun.com

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