Unnerved, investors go conservative

Unnerved,investors goconservative
One broker said his stock-buying clients prefer companies that make something they can touch and see.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
BOARDMAN -- Jaded. Unnerved. Afraid to even look at their investment statements.
That's how local stockbrokers described their clients' emotions Wednesday in the wake of shocking revelations about fraudulent financial dealings at WorldCom Inc., one more major corporation brought to its knees by deceit.
"This blind-sided everyone. This wasn't a case of the big guys knowing and the little guys being taken by surprise," said Anthony Khoury, an investment adviser for Edward Jones. "Even some of the big institutional investors got blind-sided on this one."
WorldCom, which owns MCI, the nation's No. 2 long-distance carrier, revealed Tuesday that more than $3 billion of expenses in 2001 and $797 million in the first quarter of 2002 were wrongly listed on company books as capital expenses, and thus not reflected in its earnings results.
Conservative clients
Khoury, whose office is based in Boardman, said he's already seen most of his clients turn away from buying individual stocks, and the WorldCom scandal "is just another slap."
"Back in 1999, I had to fight to get people to have a diversified portfolio. They wanted the sexy tech stocks. Of course, in 1999 the Nasdaq grew 86 percent," Khoury said. "Now it's the opposite. People want to be very, very conservative."
He said many clients, jaded by the rash of corporate dishonesty and the consistently sluggish stock market, want to buy bonds. Bonds are conservative, but they aren't a good buy now, he said, because they're priced high and not likely to grow more. Khoury prefers to see clients invest in a diversified portfolio of mutual funds.
"If you diversify, you won't be protected from disappointment, but you will be protected for disaster," Khoury said.
'Avoidance behavior'
Chuck Baker, senior vice president at Butler Wick in Youngstown, said he was not surprised when the firm received just a few calls from worried investors after the WorldCom news came out Tuesday.
"Clients tend not to call. They don't even look at their statements," he said. "It's avoidance behavior, and I hear from other brokers that they see it, too."
In general, Baker confirmed, investors are much more conservative now than they were before Sept. 11. Corporate accounting scandals and the threat of terrorism are both factors, he said, combined with the drop in stock prices.
Baker said there were many signs that WorldCom was in trouble -- the stock was at $15 in January, a fraction of its three-year high of $61.98.
Many institutional investors dropped the stock, he said. Still, he added that some investors will be affected by the company's downfall and not realize it because WorldCom was included in many mutual funds, 401(k) plans and retirements plans.
A sign of trouble
Brent Nelson, a stockbroker for WRP Investments in Liberty, agreed that the plummeting stock price was evidence of trouble within the company.
But despite the signs, he said, WRP was contacted just two weeks ago by a representative from a large mutual fund company who argued that WorldCom was still a viable company.
Nelson said most of his clients are long-term investors who keep their money in mutual funds. When they do invest in stocks, most now opt for "brick-and-mortar" companies that produce a real, tangible product rather than tech companies like WorldCom.
"They want something concrete," he said. "They want to be able to see it, smell it, kick the tires. They're no longer interested in tech companies."
Same strategies
Eric Martin, branch manager and senior vice president of Commonwealth Financial in Boardman, said he doesn't think the string of corporate fraud cases has caused investors to change their strategies yet.
Clients who have more disposable income are generally the ones willing to invest in individual stocks, he said, while those investing in retirement funds prefer mutual funds.
Martin said his office had more client calls than usual after the WorldCom scandal came out, but there was no panic.
"People are watching the stock market more closely, and they're unnerved because they're getting so much bad news," he said. "Basically, people are just searching for answers."
The answer, in Martin's opinion, is to take a long-term view of investing. "If you need reminding of the power of long-term investing, look at a chart of the Dow and the S & amp;P 500 over the past 80 years," he said.
Effects
News of the WorldCom accounting scandal sent stocks falling sharply Wednesday.
The Dow Jones industrials dropped as much as 190 points, falling below 9,000 for the first time since Oct. 10. The Nasdaq composite index traded below its post-Sept. 11 closing low.
WorldCom expects to lay off 17,000 employees Friday, and some local jobs could be at stake. MCI has a 1,100-worker call center in Niles, that city's largest employer, and the company has not yet announced whether layoffs will affect workers there.
XInformation from the Associated Press was used in this report.