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The market pros were running, small investors sitting tight

October 28, 1997

NEW YORK (AP) _ For years, the Wall Street pros have been worrying about what the small investors would do if the Dow Jones industrial average snapped lower.

Perhaps they should have been looking around the room.

The portfolio managers on Wall Street who handle other people’s money are getting much of the blame for Monday’s 550-point Dow debacle. The small investors who have been pouring billions into the stock market through their employee-sponsored retirement plans weren’t the ones sucking $600 billion out of the market’s value.

Some of the pros were on their way to redemption this morning. After they drove the market 178 points lower in the opening minutes of trading, a new wave of buying sent the Dow back up more than 100 points by early afternoon.

``In one crisis after another small investors and the seasoned, steadier hands among professionals look at this as a buying opportunity,″ Hugh Johnson, chief investment strategist at First Albany Corp., said this morning.

``Retail clients ... have not all panicked or lost confidence,″ he said. ``They’re apprehensive, but on balance are showing a lot more steadier hand than professional investors. My faith is restored in the small investors.″

About four in 10 American adults own stocks either outright or through a mutual fund and 89 percent of them are saving for retirement, according to a survey conducted this year for the Nasdaq Stock Market. It was those investors that many believe stood pat Monday.

The professional investors, unwilling to let a few day’s downdraft spoil what has been a stellar year, had a bigger incentive to bail out. Before the bloodshed started Monday, the Dow was up nearly 20 percent _ gains that were nearly halved in one day of abbreviated trading.

Some investors had been waiting for a chance like this.

``I was looking for this kind of day, and I pulled the trigger,″ said Paul Skene, a commercial real estate broker in Salt Lake City who had moved most of his money out of stocks in July but got back in on Monday.

``I don’t know if I’m ever going to get another opportunity like this,″ he said. ``I may be wrong, but I’ll take my chance.″

Porter Pierpont Morgan, investment strategist at Liberty Financial Cos., said investors shouldn’t be trying to time the market’s moves. Waiting for a drop to get in isn’t the best way to make the most of the years of investing many have to take advantage of before they retire.

The market has been dealt worse blows than this over the decades and each time has come back to post record highs.

``If you’re investing for a long term goal that is 10, 20 or even 40 years away, what the market does today or tomorrow doesn’t really matter,″ Morgan said.

But what the market did Thursday and Friday wasn’t supposed to happen, either.

Rather than brushing off a collapse of stocks in Hong Kong, as it did with earlier turmoil in Thailand, Indonesia and the Philippines, the U.S. stock market kept falling. U.S. companies were supposed to be insulated by the relatively small portion of business they generate in Asia. Even if this is a worldwide financial market, the drop in Hong Kong was supposed to be quickly forgotten.

That hasn’t happened and now few are willing to say the market is headed for a quick recovery.


EDITOR’S NOTE _ Dan Blake has been covering the financial markets since 1990.

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