By Clyde Noel

Local investors lick wounds after market tumble

Even though you may not have any equity in the stock market, sooner or later the results of the bear market trickle down to everyone.

“The market kept me from doing a remodeling job in the house,” said Sandy Whipple, a Los Altos accountant. “I got the permit from the city; but now, I have to wait for the market to go up again.”

Panicked investors bolted from the market with indiscriminate selling. They have befuddled market watchers by disregarding relatively positive economic news. The more selling there is, the more investors want out.

Two and a half years into the worst slump on Wall Street, many investors are telling their brokers they are exhausted. They are fed up with shrinking portfolios, fed up with the corporate scandals and fed up with the oft-repeated promise that a rebound is just around the corner.

On the other hand, Charles R. Schwab, chairman of Charles Schwab Co. Inc., one of the country’s largest financial services and securities brokerage firms, sees another attitude.

“Despite an almost daily litany of bad news, investors continue to have faith in the power of investing to build long-term financial security,” Schwab said. “Results of a recent survey reveal investor faith is being severely tested as many investors take a wait-and-see attitude.”

Dan Peter, vice president of portfolio management at Northern Trust Bank in Los Altos, remarked that, “we all became greedy; then when the upward spiral peaked, the precipitous drop changed greed into fear.” The cost of capital was low in 1996 and it became poorly allocated.

“Dot-coms raised capital for startup companies with no prospect of a return,” Peter said. “On top of that, the Enron exposé called into question the truthfulness of financial reporting itself. It has all contributed to a descending market and we don’t know where the bottom is.”

There have been losses. Pat Martino, a member of the group of seniors who meet each day in front of the Italian Deli on Main Street in downtown Los Altos, has lost more than $150,000.

“The loss is mostly in my IRA, but I’m lucky. I know people who lost more than $1 million,” Martino said.

Many people have had to rethink their retirement plans. Rick Glaze, owner of Glaze Capital Management in Los Altos, is a strong believer in asset allocation for retirement plans.

“We are encouraging clients to take cash and put it into T-bills,” Glaze said. “The market is washed out and we still don’t know where the bottom will be.”

Lawrence Hebb, senior vice president of Northern Trust Bank, shares this philosophy.

“For the longest time, there was no penalty for poor allocation; but the time has come where we have to match time investment to our needs,” Hebb said. “Asset allocation and diversification are most important in retirement.”

Glaze likes to use a football game as a simple analogy for his clients.

“Our defense is on the field and we have a good defensive plan. Our time will come and then our offense will take the field,” he said. “We have a plan for that time.”

The fact that the Dow closed below the 8,000 mark last week gave some investors hope that the bottom was reached.

Bill Hoffman, a Los Altos senior citizen, laughed because he isn’t in the market and hasn’t lost any money.

“My dad invested in the best of stocks in 1929, but lost everything in the crash. The broker came out to the house to console my father and was crying even though he had lost nothing,” Hoffman said. “I never forgot that scene and never invested in the market. I was impressed because the broker didn’t lose any money but he was the one crying.”

Even though she hasn’t invested, Karen Weiner of Los Altos has developed an interest in the market.

“Everyone I talk with starts talking about the stock market. It’s part of our life,” she said. “I’m sorry so many people lost money, but it’s a great leveler for our community.”

Another piece of the total economic situation concerns many area residents. What if the real estate bubble bursts? Why the current frenzy?

Low interest rates are the obvious cause. When rates are low, buyers can qualify for larger loans and that inflates housing prices. Fear of rising property prices that could put dream homes out of reach stimulates an over-eagerness to buy, a classic sign of a real estate bubble. Those who dump stocks to buy houses are selling low to buy high and someday will regret it.

This scenario is an “impossible scenario for Los Altos,” said George Monaco, manager of Cashin Company Realtors.

Other local realtors agree with Monaco that the Los Altos area will not have a bubble.

Articles in the Wall Street Journal indicate a different opinion. They predict a possible real estate bubble, including the corresponding risk of blowing up suddenly, throughout the country and including the Bay Area.

We may be witnessing the second-worst bear market since the Depression, but experts said it’s not time to abandon stocks entirely; it’s a time to evaluate investments.

Alexander Ng, manager of the local Edward Jones Investments brokerage in Los Altos, advised close management of stock investments.

“Don’t just watch them. Take action if they are suspect,” he said. “In the meantime, diversify.”