Monday Morning: Sad stories abound, but not investor angst

Where is the angst? Where is the anger? Billions of dollars of investor wealth have been vaporized in the dot-com collapse of the past 12 months. Except for class actions aimed at Wall Street tech analysts and IPO vendors, there are few signs of investor dismay.

Surely investors have noticed the destruction of a huge part of their wealth. For many, the losses have been so staggering that they must have noticed. Those who owned Cisco Systems a year ago, for example, have seen the value of their holdings plunge by 75%.

Cisco’s stock sold for $69.63 a share Sept. 1 of last year. As of last Thursday, it was selling at $16.90. Some Cisco investors bought the stock Sept. 1, and they weren’t all institutional. Many must have been individual investors. How are they faring today?

What about those who bought Lucent last year? It has fallen to $7.02 a share, from just below $45. That’s a huge loss.

No doubt those who bought Cisco or Lucent last September are a small percentage of those investors who own the stock today. Some owners may still have significant gains. Others have far smaller losses. But nonetheless, billions of dollars of wealth have been wiped out in the past 12 months.

Millions of investors poured billions of dollars into tech-oriented growth and emerging-growth mutual funds. They also have suffered huge losses. All of those investors no doubt are reacting in different ways.

Some may have looked at their portfolios and found that despite the losses on some stocks in the past year, overall they are still far ahead of where they were just five years ago. After all, the Dow Jones Industrial Average was at about 6000 in 1996.

Though it has fallen to 10423 from its high of more than 11000, many investors who were in broadly diversified portfolios for the past five years are still well ahead. They can accept the paper losses.

Some investors probably are in denial, refusing to look closely at their portfolios of stocks or mutual funds. They don’t want to know for sure what they’ve lost. Others know they’ve got losers, but can’t bring themselves to make decisions about what and when to sell.

Other investors who have suffered real or paper losses, however, are looking for expert help.

“We have gained more new clients in the past year than ever before,” says Karen Altfest, vice president of L. J. Altfest Inc. in New York, “and some [financial advisers] I’ve talked to say their phones are ringing off the hook also.

“Some of our new clients are people who were trying to do it themselves, and have decided they need help. Some are people who listened to a broker and lost half their money and now are looking for a financial adviser to steer them in the right direction. There are a lot of sad stories out there.”

She knows a number of investors who were planning to retire in two or three years, and now will have to postpone retirement.

Ms. Altfest has noticed many different reactions to the bear market. One client felt he had lost significant amounts of money when in fact, while his portfolio return was down from its peak, it still was positive.

Other clients, she says, are “holder-oners.” They won’t get out of a stock even though it’s almost out of business. They hold on, hoping it will eventually recover.

At times like this, financial planners and advisers must be psychologists as well as investors, helping those clients who are in denial, or frozen like deer in headlights, to become resigned to their situations.

They must help such investors get beyond the anger and grief at the losses and postponed plans and dreams, and begin to take actions to recover and prepare for the future.

Unfortunately, financial advisers can’t help those who don’t reach out for help, and that’s the great majority of individual investors.

Mike Clowes is the editorial director of InvestmentNews.