Published Sunday, July 21, 2002
is lacking
Herald Business Editor
Yuck! Ouch! Blah!
These are but a few of the words investors have been using to describe the stock market. With each passing week it seems a new scandal arises over self-dealing by company executives who took accounting methods to new lows.
Enron, WorldCom and Adelphia Communications are now buzzwords for once high-flying businesses that have hit the skids.
Couple this with stock prices going to you know where in a handbasket what's an investor to do?
Local stock brokers are telling investors to keep the faith but it's getting harder and harder as everyone wonders if there are any more skeletons in boardroom closets.
"It's not even funny anymore,'' said a glum Matt Lazaroff, vice president and Sharon branch manager for Raymond James Securities Inc. "This has been very difficult for the brokerage industry.''
When doling out advice to clients, brokers and analysts rely on information provided by businesses the accounting firms that audit them. Buying stock is based on trust and now that's a tougher sale, Lazaroff said.
"We like to think the majority of businesses in this country are doing business the right way,'' Lazaroff said. "We're hoping this is limited to a very few.''
Stiff penalties and jail time for crooked executives is the best way to clean up the mess, he added.
"The government has to show they mean business by telling these people there are no free lunches,'' he said. "They need to take everything away from them, their houses, their cars ... that will set the stage for those who follow.''
Instead of individual stocks, Lazaroff has been putting more of his clients' money in mutual funds.
Lazaroff forecasts stock prices and the economy will continue to be sluggish with a turnaround not expected until early next year.
In an even gloomier pronouncement, the stockbroker said this downturn is worse than the slaughter of 1974, when stocks went into the tank. Not that the current slide is worse from a percentage point of view. Rather, it's the number of people who own stocks.
"There are more people affected now because of the popularity of 401k plans,'' Lazaroff said. "It's affecting more of the population than ever before -- that's why I think it's worse.''
Not so, said David DeForest, a stockbroker with Butler Wick & Co.'s Sharon office.
"In 1974 it was a complete liquidation,'' DeForest said. "The government was financing itself on debt, we had inflation, riots and social pressures. There were a lot of things wrong in 1974 that I don't see now.''
DeForest has continued to buy stocks for clients but has targeted stocks yielding dividends, preferred stocks and utilities as the safe haven for now.
Most clients have been very understanding so far when talking about companies that have imploded. DeForest had a close relative who owned 2,000 shares of Enron stock.
"What do you do when you're lied to?'' DeForest questioned of Enron executives. His advice: on future stock picks: Be more vigilant, ask more questions and carry a bit a cynicism.
There's no doubt markets are in a tizzy, said Marvin Manes, vice president and branch manager for McDonald & Co.'s Canfield, Ohio, office.
"It's a little scary out there when you see the (Dow Jones Industrial average) down three digits and a Bush economy plan that doesn't say very much,'' Manes acknowledged. "Confidence is everything and the confidence is not there.''
But he insists the economy is nowhere near as bearish as the stock market numbers suggest.
"I went out to lunch on Monday and the restaurant's parking lot was packed -- on a Monday,'' Manes said. "People are still eating out, they're buying Coca-Cola, they're using phones and driving their cars.''
He continues to like Lucent, FirstEnergy and For Motor Co.'s as good stocks to own.
On picking the "right'' stocks Manes said a problem with investors in the recent past is they bought shares in companies they didn't grasp thoroughly.
"We like to discuss with investors companyies they understand,'' Manes said. "If an investor can't tell his wife, daughter or son in 15 words or less what that company does they don't have an understanding of what they invested in.''