Frank ---we are not alone :Chat Rooms See Market Faith
In Crisis After Bumpy Week
By IANTHE JEANNE DUGAN and RUTH SIMON
Staff Reporters of THE WALL STREET JOURNAL
There was a time, not that long ago, when the market would slump and Andy Emerson would take refuge in Qualcomm Inc., Home Depot Inc. and other "long-term" stocks that offset the losses in small names he bought day-trading from his southern Virginia car dealership.
But lately the bungee cord hasn't been pulling his profits back. "I got torn up, cut in half," Mr. Emerson says. So, last week, he dumped a seven-digit portfolio, going entirely into cash.
The extreme move is among many of the strategies wearied individual investors are resorting to these days, as they give up on the notion that the market will always spring back. Hordes of humbled investors, once wedded to high-technology stocks, have begun to put money into cash, real estate -- even Old Economy stalwarts.
Sure, the markets rebounded Friday, with the Dow Jones Industrial Average and the Nasdaq Composite Index jumping 1.6% and 7.9%, respectively. But the one-day move did little to boost the psychology of investors, discouraged by a classic grind-it-out bear market that has wiped out more than one-third of Nasdaq's value since its high in March.
"Individuals who reflexively bought on every weakness are now really dismayed and beginning to doubt themselves and wonder what this is all about," says John Schott, a Boston psychiatrist who splits his time between managing money and treating patients -- a growing number of them -- who have lost money in the market. "We're in a phase now in which the ordinary investor is questioning himself. He is anxious, full of self-doubts."
Some burned investors have gone back to basics. William Nelson, a real-estate salesman in South Brunswick, N.J., was hammered when Nasdaq stocks plunged in April. Singed by momentum trading, he largely has abandoned the chat rooms and gone back to a more fundamental style of investing.
Mr. Nelson's portfolio, which had risen to more than $50,000 earlier this year from $18,000 when he started two or three years ago, now stands at $55,000. Recently, he has nibbled on stocks such as Sawtek Inc. and Mips Technologies Inc. "I'm looking for earnings growth, revenue growth and margin growth," he says. "I'm finding my own stocks and sticking with them."
All these attitudes are far different than they were a year ago, when chat rooms were abuzz with tips on the next hot stock or sector. Then, even some novice investors fancied themselves experts, perhaps confusing brains with a bull market. Every downdraft was an opportunity to buy more cheaply. It was all about identifying stocks with momentum.
The change of heart, which had been picking up speed since early September, seemed only to affect individuals in recent days. According to an Ameritrade Holding Corp. index of its customer trades, there were more buyers than sellers in the trough. Indeed, the week of Oct. 2, investors poured $8 billion into stock funds, despite the downturn, according to TrimTabs.com, a Santa Rosa, Calif., firm that researches money flows.
"Until recently, it was one step down, two steps up," Yale economics professor Robert Shiller observes. "And people developed this faith that markets automatically rebound from crashes."
Some investors still have hope. Bill Connelly, a full-time trader in Randolph, N.J., figures he has lost $47,000 (out of a portfolio of about $210,000) since he began trading in February. Mr. Connelly isn't ready to find another occupation. "I'm pretty optimistic right now," he says. "Everything is so low now that everybody is jumping in and buying."
Faith, however, largely gave way last week. In just three days, Tuesday, Wednesday and Thursday, investors drained $9.6 billion out of stock funds -- the first major outflow of more than a day since the current slump began. "It is usually a sign of capitulation," TrimTabs chief Charles Biderman says.
Chris Lott, a Silicon Valley software engineer, got so adept at buying and selling stocks that he became a widely followed online-investment guru -- complete with a popular Web site of prescient picks and frequently asked questions. But lately, he almost stopped trading.
"I've been watching the market with bewilderment," he says. "For a while you didn't need knowledge. You could buy anything and it would go up. Now, you do need knowledge -- at least some."
He is in good company. Datek Online Holdings Corp., a closely held online service, reported last week that trades fell by about 6%. Spokesman Michael Dunn says the third quarter typically is slower because investors are vacationing. "However, we haven't seen a down market like the one that we're in for quite some time," he says.
Brent Knight, a full-time trader in Lake Tahoe, Nev., says he has cut back on his stock trading in recent months and is spending more time trading futures. "It's really difficult to make money these days" in the stock market, he explains. With futures, "I'm more certain what will happen."
Like many traders, Mr. Knight used to ride fast-moving technology stocks up and bet against highflyers that looked poised to fall. The big upward moves Mr. Knight found so profitable have largely disappeared, taking with them the opportunity for quick profits. "I'm just wondering about the volatility of stocks and whether they will move like they used to, both up and down," he says, noting that profiting is tougher in a stagnant market.
Now, some chat rooms have turned into support groups. "There was this very sad person who lost all this money and I was trying to hold their hand and tell them, hang on, the market will turn around," says a Connecticut graphics designer, who doesn't want to identify herself beyond her handle on online investment forum Silicon Investor -- SusanG.
On Wednesday, she and some investors started a chat topic called "Moving Now," to alert one another of shifts in the handful of stocks that each of about two dozen participants follow. It quickly became the hottest thread on the popular investment salon, collecting more than 1,500 postings by Friday.
"What we're doing is trying to band together so we can jump as soon as we see where the big money is moving," says Linda Warren, a graphic-arts designer in Toronto, who started the thread under the handle "Nokomis."
Suggestions, she wrote, must be based on news or numbers. "We believe it takes more than liking/despising or having a gut feel for a stock to enter a trade," her posting reads.
SusanG follows Stamps.com Inc., which has swooned from a high of $98.50 to as low as $2.31. At 4 p.m. Friday in Nasdaq Stock Market trading, Stamps.com shares were up 47 cents to $3.19.
"I thought this was good for the long-term portfolio, because the trend seems to be people using the Net rather than Pitney Bowes postage meters," she says. On Thursday, she noticed the company had a management shake-up and alerted the crowd.
In September, Nasdaq and New York Stock Exchange trades were up 21%, according to a new report by Matthew Vetto, an analyst who follows online financial services. There is a shift, he believes, to larger-capitalization, more liquid names.
That is what Greg Brown, a Washington, D.C., marriage counselor, is doing. Mr. Brown, who has a yen for small telecommunications and biotechnology stocks, has purged most of those from his $20,000 to $30,000 portfolio in favor of blue chips. Where once he averaged two to five trades each month, he has backed off to as few as one.
"I was actually becoming obsessed with it," Mr. Brown says. "Now, I am just sitting back watching it."
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