Stock market ride a bear
Expect a rough ride on the stock market the next few days, but those who hang on should end up in a strong financial position, say many Lake Tahoe investment professionals.
On Monday, they said that a lot.
The call volume at Dean Witter Reynolds, Inc. at Stateline was twice, maybe triple, that of a normal day following a record drop on Wall Street, according to Donald K. Brooks, Jr., senior vice president of investments.
“The market has definitely worked out in the long run,” he said. “There’s no reason to believe that this would be any different.”
“This” refers to the 554 point drop on Monday in the Dow Jones Industrial Average which triggered the first ever automatic stop to trading from a system of “circuit breakers” installed following the Oct. 19, 1987 crash. The automatic stop is designed to give the stock market a chance to catch its electronic breath and for traders to rethink their position before trading resumes. After a 30 minute halt, the market reopened only to close again, for the second time ever, after less than half an hour of downward trading.
Though the Dow recorded a record drop in points, the percentage drop of 7.18 percent was less than the 1987 percentage of 22 to a 508 point drop. The 1929 crash that precipitated the Great Depression dropped the market around 84 percent.
“When you get a day like this, virtually everything participates,” Brooks said yesterday after trading had ceased. “The local markets were also affected.”
Harrah’s Casinos closed at just over $18 a share. From a recent high of 23, shares are now comparable to May and June prices, Brooks said. Harveys Casino Resorts fared a little better at 18 3/4 compared to a recent high of 19 1/2.
The downturn seems to have been triggered by a downward spiral in the Hong Kong Exchange plus the probability of an increase in interest rates.
Inexperienced investors are also part of the problem, said Cheryl Sillings of Brookstreet Securities Corp.
“I think the reason the market is going down is because a lot of young money managers have not gone through a downturn before,” said the 18-year investment veteran. “They’re looking for their October bonuses (and selling so their portfolios look good).”
Whatever the root cause, Sillings expects the market to drop more before stabilizing.
“I think it will continue to test the lows,” she said. “There’s still a lot of money going into the market. Once this blip is over we’ll see stocks increase again.”
Though Jeff Seidel of Seidel Securities and Insurance Agency, also recommends a long-range approach to stocks, he suggests investors not be lulled by a false sense of security.
“I do not have a crystal ball, but I’ve been telling my clients for a number of years something’s going to bust the balloon,” Seidel said. “I don’t think this is the big one.”
For now, he’s advising those who can wait to hold on to their investments. Those who are depending on their investments to pay their mortgage should get out and buy back in later at a lower price.
“Possibly, the markets will bounce back, maybe,” he said.
The New York Stock Exchange has had many gloomy years in the short run but over its history, has climbed substantially.
One dollar invested in the stock market in 1925 would have grown to $1,370.95, said Brooks at Dean Witter Reynolds.
From 1925 through 1996, which includes the 1929 crash that precipitated The Great Depression and the 1987 downturn, stocks for small companies increased an average of 12.6 percent per year. Treasury Bills, considered the safest investment, increased only 3.7 percent.
“History proves that those who panic and get out are the ones who do less well in the stock market,” Brooks said.
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