STOCK MARKET Scandals weaken trust of investors

Enron's fall and other accounting scandals are driving investors away from the stock market.
CHRISTIAN SCIENCE MONITOR
NEW YORK -- Engineer Bruce Sullivan used to invest in the stock market. But after losing money and his trust in Wall street, he's pouring his savings into remodeling his house instead.
"Even if you're being responsible and trying to get legitimate information the system is screwed up," he says. "How businesses keep track of their money -- it's a shell game of information."
Sullivan is not alone in feeling discouraged about Wall Street. The Enron scandal and other examples of corporate shenanigans have investors questioning whether it's worth buying stocks.
Fuzzy math: After a decade in which the stock market became an unofficial bank vault for millions of Americans, many investors are now finding their confidence shaken by the fuzzy math of a few corporations.
Everyone from the heads of major companies to cabdrivers are discovering that some of the companies they are socking their savings into are using accounting devices that belong more in a Hollywood movie about con men.
In response, investors are now putting more of their money into less risky investments such as homes and bonds.
Issue to emerge: Questionable accounting practices and Wall Street credibility are likely to surface in coming weeks as Congress and federal investigators continue to investigate the Enron affair.
How much all of this is hurting the market is hard to quantify. Since Enron declared bankruptcy last December, the stock market's value has declined by about $26 billion, or only a quarter of a percent through the end of January. Yet some surveys show that the damage goes beyond the value of a portfolio.
A Business Week/Ipsos-Reid poll of 619 investors found that 54 percent worried that the information they get is not honest and reliable. Some 68 percent have little or no faith that the market treats average investors fairly.
Real estate: Some analysts suggest one of the reasons the real estate market has remained so strong is because Americans are afraid of losing money in the stock market. A recent survey by the National Association of Realtors found that the national median existing-home price rose 6.2 percent in the fourth quarter compared with a year earlier.
It's perhaps not surprising that stock market investors are confused. Corporations keep announcing titanic new accounting errors. Anadarko Petroleum last month said it would deduct $1.7 billion from its earnings because of such a mistake.
"It will be interesting to see how quickly we can become trusting again," says Julia Grant, an accounting professor at Case Western Reserve University in Cleveland. "My mother is saying, 'How do I know which is right and which is wrong?'"
Can't blame them: So many unpleasant surprises have surfaced recently that investors may have a right to be skeptical. "There have been a lot of little dark secrets, and as a result of Enron the light has been turned on," says Clint Kuboyama, an analyst at Value Line Investment Survey. "This is probably healthy."
In fact, Houston thinks it's important that investors maintain a perspective on the current affair. "There is always a catalyst that will take an overblown market and cause everyone to pull back," he explains.
In the past, for example, the market has been slammed because of concerns about price-to-earnings ratios, foreign crises, and interest-rate worries. "I don't think we should let accounting irregularity from a handful of companies cast a shadow across the rest of the market," he says.
That's how Dave Guarraia, a New York medical student whose two siblings are corporate accountants, views the situation. "Companies can create whatever bottom line they want," he says. "But they can only spin a false set of numbers for so long."