Investing Activity Slows Dramatically
Individual investors kept feeding the 1990s bull market, as new technology and lower commissions
enabled them to make cheaper and more efficient trades.
By 1999, 48.2 percent of U.S. households owned equities, compared with only 32.5 percent a decade
earlier, according to the Securities Industry Association. But the prolonged market slump has turned
some investors from the market, and they have taken away business from brokerages and mutual funds
alike.
Customers at the largest U.S. discount brokerage, Charles Schwab Corp. (NYSE:SCH - news),
called in 281,800 stock trades in January, a 26 percent decline from a year before.
New customer accounts slumped dramatically at Schwab's largest rival, TD Waterhouse Group Inc.
(NYSE:TWE - news) (Toronto:TWE.TO - news), in its first quarter. Only 160,000 customers set up
new accounts, down 38 percent from the first quarter of 2000.
Top brokerages aren't the only ones getting hit. Investors pulled an estimated $12.5 billion out of stock
funds in February, based on activity through Feb. 22, according to California-based data service Trim
Tabs.com. Monthly outflows from stock funds have been rare in the past dozen years.
Dramatically lower levels of margin debt clearly indicate investor caution. Trading stocks on margin
means a customer borrows money from a brokerage to buy more stock.
Margin debt hit a record $278.5 billion at the Nasdaq's peak a year ago, according to the New York
Stock Exchange (news - web sites). It has since fallen 30 percent to $197.1 billion.
Investors, who typically borrow more in rising markets to get their hands on as many shares as they
can, face margin calls if their portfolios fall below a certain value. That means they have to pay back
their loans or have their stocks sold out from under them, which can take a deep bite out of their
holdings.
``The people that really got stung bad ... have slowed down,'' Quick & Reilly's McGraw said. ``By the
end of the year, they were kind of done (trading on margin).''
Investors also seem to have foregone those daily -- sometimes hourly -- checkups of their portfolios, a
common practice when they were dreaming of retirement with their high-flying investments.
``People just don't want to count it when it doesn't look that good,'' McGraw said. |
