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By Tom Shean and Philip Walzer, The Virginian-Pilot, October 11, 2008
When stock prices tumbled in late September, investors called stockbrokers and financial advisers for reassurance.
On Friday, investors wanted to know about how their brokerage accounts are insured and some were asking, “Shouldn’t we just get out of the market now?” said Ken Wren Jr., president of Towne Investment Group, a unit of Portsmouth-based TowneBank.
After the market sell-off of the past 10 days – the Dow Jones industrial average has dropped 22 percent since Sept. 30 – investor worry has slipped into fear and, for some, panic.
“The calls have gone from 'Let’s just talk’ to 'Tell me about the Securities Investor Protection Corporation and how it works,’” Wren said.
Some brokerage clients wanted details about the insurance for their accounts and money market mutual funds; others said they had given up on the stock market, unwilling to accept continued heavy losses.
In September, the ou tflow from mutual funds hit an all-time record, according to TrimTabs Investment Research. The Sausalito, Calif.-based firm reported Thursday that investors pulled a record $72.3 billion out of U.S.-managed stock and bond funds last month and another $52.1 billion in the first week of October.
The withdrawals haven’t let up, and “we’re on pace to crush that record in October,” Wren said.
Wren and other investment professionals in Hampton Roads said they reiterated to clients that they should resist that urge and stick to their long-range goals. It’s becoming more difficult to convince some clients to do that, they said.
“I’ve had folks who said they’ve had enough” and wanted to shift their investments from stocks to bank certificates of deposit, said Rick Mayo , a Virginia Beach financial planner with the brokerage firm Raymond James. One client, he said, asked that her investments be moved because the preservation of her principal had become a much bigger concern.
Investors who pulled their funds out of the market now were sacrificing the gains from an eventual recovery and these investors would be slow to return, Mayo said. “Once you’ve made the move out of the market, it’s tough to pull the trigger and get back in,” he said.
That won’t be an issue for Donna Worrell , owner of Tidal Wave Graphics in Chesapeake. Worrell, who expressed confidence that she can ride out the current storm, said she hasn’t altered her portfolio of stocks and bonds.
“To me, it’s a cycle every 10 years,” she said. “The United States is one of the strongest countries in the world. We will bounce back.”
Worrell said she has responded to the market’s sharp downturn by eating out less often and cutting back on clothing purchases.
Unless a client’s personal circumstances had changed, those who called Palladium Partners this week were sticking with their long-term investment goals, said Katherine Willis , a principal at the Norfolk investment advisory firm.
“Two weeks ago, there was real concern about the safety of money market mutual funds,” but that was alleviated by a government program for insuring these funds, she said.
Elsewhere in the region, investors were calling brokers and advisers wanting to know the value of their assets and whether they should consider an alternative. The volume of inquiries spiked partly because investors are inundated with information about conditions in the financial markets.
“With the click of a button on your computer or your BlackBerry , you can find out what the market is doing,” said Wren of Towne Investment Group. “The access to information generates a greater sense of urgency than it has in the past.”
At Bay Capital Advisers in Virginia Beach, managing principal Jim Flinchum said he handled a 30 percent increase in calls from nervous clients, most of whom were younger.
“Those who have never been through this before, who have never been through a crash,” like the one that occurred in October 1987, are the ones calling, he said.
Like many brokers and advisers, Bill Sheavly , the managing principal of Sheavly Financial Group in Virginia Beach, sought to cut through investors’ anxiety on Friday and concentrate on the opportunities. For those individuals with extra cash, “there are some incredible buys,” he said.
The message for clients who were frightened, however, “is to basically leave their positions where they are,” he said.
Brokers and advisers predicted that the emergency measures to support the financial markets will pay off for investors but need time.
“Every government that has acted has put really substantial amounts of assets in place,” said Jim O’Brien, a broker in Norfolk with the firm Edward Jones . “At some point in the game that’s going to take effect.”
Tom Shean, (757) 446-2379, tom.shean@pilotonline.com
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