Small-Time Investors Ride Out Stock Waves

Stock market prices last week were sharply down, but it didn't bother Joseph Bolinsky, a "rookie" investor in Stow, Mass.

"It doesn't scare me," says the plumbing and air-conditioning contractor. "The market is finding itself. It is going to stabilize."

So far that seems to be the attitude of most small investors nationwide.

Even during Gray Monday at the end of October, buyers outnumbered sellers 5 to 1, says Ray Robbins, director of research at Edward Jones, a St. Louis-based brokerage house that specializes in serving individual investors. And, he says, buyers still outnumbered sellers last week when the Asian financial crisis troubled the stock market, particularly technology issues.

Overall, buyers have to match sellers in the market. But many small investors seem to have decided that if the market takes a nose dive, it is a buying opportunity - not the time to get out.

"In general, shareholders' tolerance for volatility in the market has gone up quite a lot because there has been more of it," says Ann Patenaude, a spokeswoman for Pioneer Funds, a mutual-fund management company in Boston.

"Shareholders have gotten used to seeing this kind of swing," she adds, noting how stock prices have recovered after earlier downdrafts.

Certainly Mr. Bolinsky isn't panicked. Sometimes, a market drop "is a prelude to better things."

As he sees it, 10 or 15 years ago the stock market was dominated by an elite group. Now, with a good economy, people have a little extra money, and many are putting some of it into the market.

"The only people who are broke have bought lottery tickets," he says.

Using a computer, he buys and sells stocks for $12 a trade for himself and for his family. With one sister in Alaska, another in Pennsylvania, and his parents in Florida, he has set up Consolidated Family Investors for pooling some savings and buying stock.

Last week's drop

Some investors were concerned last week that Asia's crisis would eat into corporate earnings, especially those of technology companies. The Nasdaq composite index, laden with technology issues, had its worst week since August, and the Dow Jones Industrial Average dropped 310.83 points for the week.

Market experts, as usual, vary in their views of stocks' prospects.

Raymond Worseck, an investment strategist at A.G. Edwards, another St. Louis brokerage, says the extent of the Asia problem is not yet known and counsels a more conservative portfolio.

Are stocks overpriced?

"There is a bubble that is in the process of deflating," says David Levy of the Levy Institute Forecast in Mount Kisco, N.Y. He notes that, by some measurements, the price of stocks in relation to earnings of those stocks is just about at an all-time high.

And since the economy will grow more modestly next year, corporate-profit gains will also be less than what many investors expect, Mr. Levy adds.

Others acknowledge such signals of overvaluation but do not share the gloomy forecast. "I don't see any reason for stocks to fall at all," says James Grant, a professor at Simmons College in Boston.

His argument is that stock prices are supported by a decline in interest rates - a shift that boosted bond prices last week. That decline reduces the cost of capital for corporations, improving their true profitability.

Mr. Grant maintains that stocks are attractively priced, taking into account not only a company's cost of debt, but also its cost of equity capital.

Indeed, in his own retirement portfolio, Grant puts 100 percent into stocks. That, he says, violates a common rule that an individual should subtract his age from 100 (some say 110) and invest that percentage of his portfolio in stocks and the rest in bonds or other fixed-income investments.

Bolinsky, a young man, notes that he has many years to retirement and thus can wait for the market to recover should it fall. But he was pleased to have gotten out of the market with his own investments a few days before the Oct. 27 plunge. "It was really just luck," he says. "It is hard to time the market."

Apparently most of those with retirement investment accounts, such as 401(k) plans, agree on market patience. Ms. Patenaude says that about half the accounts with her firm are in such plans and that relatively few switch from one type of account to another - say from a stock fund to a money market fund - when stock prices fall. Rather, each month their firms put another slug of money into their account.

"It is perfect dollar-cost averaging," she says, referring to a technique of investing regularly over time.