Tuesday, October 28, 1997
Abilenians wonder what it means to them
By DOUG WILLIAMSON and BRIAN BETHEL Staff Writers
What does the decline of the Dow Jones Industrial Average really
mean to me?
It probably is the correction, or the beginning of the correction,
that has been predicted for months, local investors and investment
advisers say.
"The ultimate effect remains to be seen. Most people were
expecting a correction. This one may be more sudden than anticipated,"
said Ray Howe, chairman and CEO of Abilene's United Bank and Trust.
"A market cannot continue to grow (as this one has). There
has to be a correction."
That is only one of the questions investors have this morning.
<B>Who caused the decline?<B>
-- Ron Lewis of D.E. Frey in Abilene said, "We had orderly
selling and absolutely no buying. The money managers who are paid
on the profits they make brought this about. They are trying to
lock in their profits for the year before the end of the quarter
this Friday."
-- Alfred E. Goldman, a vice president at A.G. Edwards &
Sons Inc., a St. Louis-based investment firm, agreed, placing
the blame on "the fuzzy-cheeked supposed professional money
managers who have never seen a down market and who get a scorecard
almost daily" based on the profits they make. He described
individual investors as calmer and less emotional than the pros.
Has it bottomed out?
-- "It's a bloodbath," said Arnold Kaufman, a market
analyst at Standard & Poor's. "It scares you because
when you get a decline this fast, there's a risk it will keep
snowballing."
-- Dr. Jack Griggs, dean of Abilene Christian University School
of Business and investments class instructor, said, "The
most important thing is to have a portfolio designed in such a
way to let you sleep at night. Design it so that no matter what
the market does, you can have some confidence."
"Today we have a very integrated economy. I think we are
going to see a buying opportunity here although no one can tell
you exactly what that will entail. Certainly, markets get over-valued
and under-valued, and each time one of those conditions comes
around you get people who are quick to declare we're in some kind
of new era.
"The current market has definitely been over-valued. ...
I think it could conceivably drop a little more. One thing a person
ought to look at is historical price-earnings ratios. Those have
been up recently, to about 22. Historically, it has been more
in the neighborhood of 16 or so. In 1950, it was about eight and
from 1974 to about 1985 it was about 10. Recently, over the past
couple of years, we've seen the 19-22 range.
Should I buy or sell today?
-- "If I were a baby boomer, I would stay in the market.
In fact, this week might be a good time to add to my investments,"
said Lewis.
-- "I wish I had more money to invest," said Helen
Ginty, 60, a secretary in New York, asserting that she plans no
change in her retirement investment strategy. "I don't think
people are as crazy as they used to be" during a downturn.
-- Gloria Humphrey, 35, of Columbus, Ohio, who described herself
as a casual follower of the market, also preferred to take a long-term
view. "You have to ride it out, like a roller coaster - and
not panic like some people do." <B>What about my 401(k)?<B>
-- Phil Harris, a financial consultant with Merrill Lynch in
Abilene, said 401(k) money is long-term money. "The key thing
- asset allocation - will give the best overall returns."
Investors should look and see how long they will be working.
The longer the time lines, the more exposure to equities or stock
mutual funds an investor should have, he said.
"Look at 10-year averages, 15- or 20-year averages to
see how fund managers perform through bear markets," Harris
said.
-- "Anyone investing in the market for their retirement
is fine," Lewis said. "This is a short-term situation
that will change. Hang in there."
What will the market do today?
-- Griggs said, "I wouldn't be surprised to see the market
drop a little more Tuesday. What will happen then is you're going
to see an increase in the price of bonds. As demand for bonds
go up, so will their prices. Interest rates will probably fall.
"That's what happened in 1987, in addition to the market
being flooded with more money to make sure there was enough liquidity."
-- Harris said he expects "further volatility and follow
through of what you saw Monday. It will probably stabilize by
end of the week."
-- Mace Blicksilver, managing director of U.S. equities trading
at Credit Lyonnais Securities, said, "No one really knows.
We've never gone through this. If they take them up 125 (on the
Dow) at the opening, by the end of the day we'll be right back
down at these lows."
-- "We're in for some more volatility," said Marshall
Front, managing director of a Chicago investment management firm.
"I think that the markets departed from reality. Once you
get into one of these periods where psychology (runs amok) and
fundamentals are disconnected from market, anything can happen.
The circuit breakers exacerbated the volatility. Once the circuit
breaker hit, people thought when trading resumes 'I'm going to
sell.'
"It wouldn't surprise me if it declined further, but it's
time to put some serious money to work," Front said.
(Includes information from Reporter-News wire services.)
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Abilene Reporter-News / Texnews / E.W. Scripps Publications
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