Biotech Values

[DewDiligence]

Articles like this one from page-1 of today’s Boston Globe are
a good contrary indicator on the direction of the market. When
the market has become so scary that ordinary, reasonable people
prefer money-market funds paying 0.01% interest—and this is
deemed worthy of a front-page story in a major newspaper—the
chances are good that it’s a good time to be buying stocks. There
were myriad articles like this one near the bottom in March 2009.

http://www.boston.com/business/markets/articles/2010/06/30/tired_of_fluctuations_many_are_shedding_stocks/

›Tired of Fluctuations, Many Are Shedding Stocks

By Jenn Abelson
June 30, 2010

The stock market freefall last month, which wiped out $1 trillion in value in just minutes, proved to be Steve Weiser’s breaking point.

He sold off his entire portfolio of stocks — 25 years worth of investments for retirement and college savings — and put the cash into a money market account that is now earning 1 percent interest. It’s the second time in two years that Weiser has fled the market, and the 57-year-old architect has no plans to return anytime soon.

“The question for me was, ‘Oh, my God, is this going to happen again?’ ’’ said Weiser, who estimates that he saved $90,000 by removing his money from the market and avoiding the continuing losses of the past month. “It was just too hard to understand, so I jumped out. And I’m just sitting on the sidelines.’’

The wild gyrations of Wall Street and tumultuous world affairs have spooked millions of investors into going against the conventional wisdom: that staying the course during market fluctuations is the best long-term strategy. Investors are leaving the stock market in droves, and putting their money into bonds, gold, real estate, or — like Weiser — cold, hard cash. The conflicting economic indicators in the United States, the debt crisis in Europe, and the massive oil spill in the gulf create too much uncertainty, too much risk.

US stocks slid yesterday after reports of a sharp decline in consumer confidence added to jitters over the global economic outlook. The S&P 500 had its lowest closing price of the year, and the Dow Jones industrial average fell below 10,000, dropping 5.35 percent since the start of the year.

Investors pulled more than $16 billion from stock and bond mutual funds for the week ending May 26, the largest weekly outflow since December 2008. And in May, Americans made dramatic changes to their portfolios, including a 9.5 percentage point decrease in stocks, a 4.4 percentage point increase in cash, and a 5.1 percentage point jump in bonds, according to a survey by the American Association of Individual Investors.

“People are unbelievably frustrated and terrified,’’ said Fred Sears, a portfolio manager who gave a talk to a group of Boston area investors last month. “It’s terrifying for everyone — professionals and amateurs alike.’’

Sears also shook up his own portfolio, cutting his long-term investments in the stock market from 98 percent to 80 percent and shifting more money to cash and cash equivalents, such as money markets. During his talk, Sears heard tales from other exasperated investors who had left the market. Many financial advisers are encouraging clients to avoid making drastic changes and point to rebounds over the past year as proof of the long-term potential of staying in the market. Investors who put $10,000 in the market on Sept. 2, 2008, for example, would have only $5,539 if they sold their stocks when the market sank in March 2009. Investors who didn’t budge would have $8,904 today, according to an analysis provided by T. Rowe Price.

Still, people have been on edge, particularly since the May 6 “Flash Crash’’ when the Dow fell 998 points in a half hour, making it one of the most volatile periods in Wall Street history. Just between 2:30 and 3 p.m., the stock market lost about $1 trillion in value, and then recovered more than half of the loss. The precise cause of the dive is not known, and regulators are still investigating.

The next day, Haven Tyler of Jamaica Plain called her financial adviser, John Osbon, to make changes to her investments, including shifting 10 percent of her portfolio from stocks into other assets, such as gold, cash, and real estate. Tyler now has 70 percent of her portfolio invested in stocks, and any new funds are staying liquid or being used for renovations to her new home.

“I feel safer that way,’’ said Tyler, 43, who works for a design firm. “It’s been sheer terror watching your money go away and come back again and go away.’’

Like many investors, Tyler is feeling more uneasy about the economic recovery. Mixed signals continue to keep investors on high alert. For example, retailers reported a 1.2 percent decline in sales in May, the first drop since September, while consumer confidence rose to a new high during the recovery, according to a recent Thomson Reuters/University of Michigan survey.

“Fear is back,’’ said Osbon. “I’m sure people are wondering is this 2008 all over again. But jobs are rising and home prices have been up so we have to keep everything in perspective.’’

The exodus of investors has prompted some online brokers to step up promotions. TradeStation for the first time offered commission-free trades for 60 days to traders who open and fund an account by June 30. E*trade is offering 10 commission-free stock trades in 30 days.

But no promotion is going to lure back Kaiomarz Dotivala. The Waltham engineer sold the portfolio of stocks in his 401(k) in 2008 before the market plunged. As others saw retirement savings plummet, Dotivala has kept his cash in a money market account earning less than 1 percent interest. He recently borrowed half of those funds for a down payment on a house in Westford.

“I can give my daughter a better education and have her grow up in a better neighborhood,’’ said Dotivala, 43. “Investing in something more concrete is definitely a good idea.’’

The roller coaster ride on Wall Street lately has only reinforced Dotivala’s views that the market is being ruled by aggressive traders who are betting on stock prices to go down. “The real purpose of the stock market has been completely lost. It’s become a casino and betting game rather than a straight forward investment like it was before,’’ Dotivala said. “And I’m not a gambling kind of person.’’‹