After the Fall

In 2001, investors are in the market for good advice.

March, 2001

In a humorous commercial for a popular on-line trading firm, a wild but seemingly wise Generation Next-er shows a buttoned-downed 50-something how easy it is to purchase stocks on his personal computer in the time it takes to make a cup of coffee. Anyone can play the stock market. Advice, planning, analysis. Who needs them?

But the commercial, along with about $2.5 trillion in market capitalization, is gone now. At the end of 2000 the Nasdaq bottomed out at 2,332.78—down 39.3 percent from the previous year—the biggest decline in its 30-year history. The Dow wasn’t too far behind, falling 81.91 points, down about 6.2 percent from previous year levels. Picking winners wasn’t as easy as it looked.

“The recent downturn had a lot of people asking questions” says Cindi John, investment representative with Edward Jones. “I think they realized that this was a little more complicated than they thought. They are saying things like: ‘Is my portfolio structured correctly? Maybe tech wan’t the way to go. Maybe I need some advice.”

“We are seeing a lot more interest with people who want to bring in their portfolios and have us take a look at them,” says Jung. “A lot of them have more aggressive portfolios than they should. A 55-year-old man comes here and he has 50 percent of his money in high-tech or bio-tech. Well, that’s not appropriate. That’s the type of thing we are seeing.”And that is exactly what they having been doing in 2001. Seeking advice. According to Ted Jung, branch manager and senior vice president at Salomon Smith Barney, although overall business at his firm has been flat in the first couple of months of the new year, the amount of telephone calls his staff is receiving asking for advice has gone way up.

And what Jung and investment advisers around town are telling their clients is the same thing that they had been saying all along: diversify. Only this time it seems people are more willing to listen.

“I think it was a wake-up call in that people are realizing that they need to diversify among individual stocks, different kinds of mutual funds and include other types of investments in their portfolios like mutual funds, bonds, CDs,” says John. “With the tech industries going up so high so fast, the stock market didn’t seem like a risk.”

Even though the market took a beating, surprisingly, both John and Jung have not lost any clients. They may have even picked up a few. And their customers’ moods and the advisers’ messages are upbeat. Both agree it is a great opportunity for long-term investors to get into the market because prices are down. John notes that while the tech and telecommunications industries did poorly, health care, utilities and financial stocks faired very well.

Getting them to jump back into a down market may be a little bit of a challenge. But John is confident that when people see the new opportunities and not the lost ones, they will be more willing to jump back into the market.

“I haven’t seen any panic out there,” says John. “I think the people who sought out advice from the beginning, the people who bought and held for the long term were prepared for times like this. And history has taught us that this will happen again.”



Related Stories

On Newsstands Now

October 2017

HB October 2017


David K. Choo