Mr. Flynn's third mention in the WSJ...
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FROM THE ARCHIVES: June 21, 2000
Nasdaq Believers Keep the Faith To Recoup Losses in Rebound
By SUSAN PULLIAM and RUTH SIMON
Staff Reporters of THE WALL STREET JOURNAL
Nasdaq has come back because many small investors never went away.
When the stock market turned rocky in March, William Flynn, a barber in Dennis, Mass., knew it was only a matter of time before technology stocks would spring back to life. Tuesday, as the Nasdaq Composite Index crawled above the 4000 milestone for the first time since mid-April, his stoicism paid off.
"We always believed it would come back," says Mr. Flynn, whose barber shop serves as a meeting place for local small-business men who come to trade technology stock tips and who was the subject of a page-one article in The Wall Street Journal earlier this year.
Sure, he says, the Nasdaq decline "opened my eyes a little. I'm looking more carefully at what I buy." But he says his confidence in technology stocks remains unshaken: "I can see it going back to 5000 by the end of the year."
For investors like Mr. Flynn, the market's 40% decline from its peak in March, while disquieting, had been neither surprising nor enough to destroy their faith in technology stocks as a wise investment. "I'm not just buying any biotechnology or high-tech stock," Mr. Flynn says, instead sticking to his favorites that held up well during the decline, including EMC Corp.
The resiliency of some tech investors is remarkable. Michel Venghiattis, a food broker in Marin County, Calif., had parlayed investments totaling $90,000 into $4.7 million by investing heavily in Internet holding company Xcelera.com , in part by using borrowed money to boost his stake. Mr. Venghiattis's broker liquidated his account after Xcelera plunged in April. He wound up paying his broker $54,000 to cover losses, accrued interest and checks written against the account.
Mr. Venghiattis continues to place all his hopes on Xcelera. He and his wife hold 4,000 shares of the stock in their retirement accounts, including about 560 shares purchased last month. "I think it's going to rebound very strongly," he says. "Technology and Internet infrastructure are going to really be strong winners by the end of the year or by the first quarter of '01."
The fact that investors' optimism hasn't cooled suggests the Nasdaq has plenty of room to go higher. The question now is how much of the speculation that drove the Nasdaq to record highs in March will seep back into the market.
"Things have been too good for too long for confidence to be squeezed out in two months," says Steven Galbraith, an analyst with Sanford C. Bernstein. "You have supreme investor confidence today, and it will take more than a quarter or two months of a bad market to undermine that confidence."
Some investors who rode out the market's decline with aplomb are now adding to their tech holdings, though many are avoiding the highly speculative bets that marked the Nasdaq's run earlier in the year.
Mr. Flynn, for one, recently bought shares of Abgenix Inc., a biotechnology stock, after losing $10,000 on the stock during the market downdraft. Now, he is up 70% on his new Abgenix holding and he is holding on for more gains. He has got plenty of other reasons to celebrate as well this week: The value of his portfolio hit a new high after suffering declines of 40% at the market's low ebb.
Even some investors who took it on the chin are unchastened by the market's rough ride this year. Take the case of Ted Chase, an investor in Valdosta, Fla., whose portfolio is still down 50% from its high earlier this year. He has changed his strategy somewhat, avoiding what he calls the "wild" stocks in the Internet sector and sticking to blue-chip technology stocks such as Motorola Inc. and Texas Instruments Inc. But he isn't considering throwing in the towel. "I was confident it would turn around," he says. "I'm determined to get my money back. It took me two years to lose it, and it could take me two years to get it back, but I'll do it," he says.
Some signs are surfacing that the speculation rampant in the Nasdaq market earlier in the year hasn't died out. Margin debt held by New York Stock Exchange member firms -- or debt taken on by investors to trade stocks -- in May fell only 4% from April's levels though some analysts were predicting declines of as much as 20% as investors pulled in their horns during the market correction. "We haven't had a massive deleveraging of the system," says Mr. Galbraith. From the peak in March, margin debt is down only a total of 14%, including a roughly 10% decline in April.
That said, some of the worst excesses in the Nasdaq market may have been wrung out during the market's slide this spring. Volume in the tiny stocks that are listed on the Over-the-Counter Bulletin Board, while still sharply higher than in past years, is down nearly 70% from the peak levels it had shot up to in February. And volume at online brokers isn't as robust as it was some months earlier.
But it is clear that the Nasdaq market is still popular with individual investors. The percentage of Nasdaq trading by individual investors still stands at about 60%, according to Mr. Galbraith, down only slightly from the market's peak when individual, or retail, investors constituted about 65% of overall Nasdaq volume.
Bradley Junco, a liquor-store owner in Albany, N.Y., is typical of the investors who lost big money in tech stocks but are still in the game.
Mr. Junco lost $30,000 after margin calls ate up the profits he had built investing in dot-com companies. Thanks to the market's rebound, his account is now valued at two-thirds of its peak. But he is still buying technology companies, though he is "trying to stay away from the true dot-coms" that burned him. Mr. Junco's market view: He "can't imagine [the market] is going to get hit any harder than it has."
Are investors just too in love with tech stocks to give them up? In some cases, they keep going back to the stocks that cost them their profits.
Paul Bedoe, who owns an alarm company in Big Bear Lake, Calif., saw the value of his brokerage account plummet from $150,000 to $15,000 after shares of his biggest holding, Pacific Gateway Exchange Inc., sank and his broker sold most of his holdings to meet margin calls. Mr. Bedoe says he doesn't plan to buy stock with borrowed funds again, but will get "more and more involved with the market."
Over the past month, Mr. Bedoe has bought more Pacific Gateway shares. "I don't think the worst is over" for the stock market, he muses, "but it's a pretty safe bet right now."
Write to Susan Pulliam at susan.pulliam@wsj.com and Ruth Simon at ruth.simon@wsj.com
Updated June 21, 2000
KJC |
