For the last 3 days WSJ is featuring a series on Nasdaq Peak, one year later (or something like that). (BTW, This in itself is a red flag for the bear..) In April 2000 WSJ featured this barber from Massachusetts who traded hot tech stocks and tipped his customers. The Journal revisited him this year to touch base with him. He got a margin call on his EMC holding. Had to pay 75 grand to the broker - they liquidated. He felt like his baby was sold. His portfolio was down to 250k from 800k in July 2000.
Right now, he is very optimistic that the stocks will rebound by October!
Here is full story if you have time to read.
-------------------------
Year After the Peak
Barber Urges Patience on Techs
After Getting Clipped by Nasdaq
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
A few weeks back, Rick Capobianco, a Maytag dealer in Dennis, Mass., dropped by Bill's Barber Shop and found it empty except for William Flynn, the barber. He was staring at his computer screen.
"I lost $24,000 today" in technology stocks, Mr. Flynn told Mr. Capobianco. When the Maytag man went back later, he found out Mr. Flynn had "lost even more."
Talk about getting clipped. At Bill's Barber Shop, where Mr. Flynn and local businessmen once gathered to gush over their technology-stock bets, the talk these days is about the big losses they are suffering. That is, when anyone can bear to bring up the subject of the stock market at all.
"Everyone knows Bill has lost a lot of money," says Joe O'Keefe, who runs a business painting and wallpapering for affluent summer residents in this small resort town on Cape Cod and is a regular at Bill's. "You don't want to talk about it so much."
What a difference a year makes. When Mr. Flynn's shop was profiled in a Page One story in The Wall Street Journal on March 13, 2000, at about the time the Nasdaq Stock Market peaked, it was humming with activity. The brown clapboard shop on Route 24 was a magnet for local residents agog over technology stocks who exchanged hot tips and stories about their market winnings amid their $10 haircuts. They were convinced the good times for technology shares were only beginning.
The party, of course, now is over. For Mr. Flynn, the music stopped precisely on Feb. 15. That is when he received a "margin call," a demand from his broker that he immediately put up more money to offset losses in his portfolio. So Mr. Flynn sold shares of EMC Corp. to repay a $75,000 loan from the brokerage firm Morgan Stanley Dean Witter. Now, his portfolio of technology stocks, which peaked in value at $834,000 on Sept. 20, has dwindled to about $250,000. "It hurts," he says. (Not just for him: Mr. Flynn recently raised the price of a haircut to $11.)
Barber's Tech-Stock Chit-Chat Enriches Many Cape Cod Locals (March 13, 2000)
It isn't as if Mr. Flynn is pleading poverty. It is just that he believes he was t-h-i-s close to cashing out with big winnings. But he never pulled the trigger.
"The thing is, five years ago, I never dreamed of having $400,000 in my retirement account," he says. "Then all of a sudden it hit $800,000. Now it's back to $250,000. I have to start all over. I expect I'll recoup. But I wanted to hit $1 million."
Mr. Flynn's plight is not unlike that of countless individual investors who streamed into the stock market over the past couple of years. And, like Mr. Flynn, many individuals bet heavily on technology stocks, believing the big runup would continue, allowing them to achieve financial goals that otherwise would have been beyond their reach.
For many, those hopes now are history. For Mr. Flynn, it means putting off plans to hire another barber and cut back on his own work schedule. "Things were going so well. I thought, 'Why do I have to bust my hump?' " he says. When his stocks were riding high, he says, "It felt great. I was making plans in my head. When time presented itself, my wife and I wanted to go to an island. I wanted to see some of this country. I've never had a summer vacation," he says.
Now, he says, "I'm just going to have to wait."
Despite the pain, Mr. Flynn remains a believer in tech shares. "I still feel that we're just seeing the beginning for technology stocks," he says. "I believe that when the dust settles technology stocks will come back," he says. Says Mr. O'Keefe: "I still think long-term the market is where you want to be. Six months from now we'll look back and say there were some real buying opportunities."
Mr. Flynn's apparently unshakable belief in technology stocks and that of investors like him, even after punishing losses, helps explain why the long slide over the last year in the Nasdaq Stock Market has proceeded in a slow, grinding fashion -- a far cry from the panicky sell-off of 1987, for instance. But that same sentiment also raises questions about whether a further market drop could trigger a capitulation by individual investors. For now, Mr. Flynn is sitting tight. "I think we'll get a second chance," he says.
But the fun is gone. These days, Mr. Flynn passes most of the time cutting customers' hair and chatting about stuff other than stocks. "Guys aren't coming in as much. I see them maybe once a month. Everyone knows I had all my apples in one barrel," he says. But he says he has no regrets. "I don't think I was wrong to make the bet I did," he says. "We'll make a comeback," he says. "I'm sure."
Well, OK. Still, Mr. Flynn's losses are that much harder to accept because he came so close to meeting his goal of a $1 million value on his holdings: "I thought of getting out. But I wanted just one more split in EMC shares. Then I would have gotten out and been comfortable. That would have taken care of my retirement."
Indeed, throughout last year, Mr. Flynn's stock holdings rode out the storm in technology stocks successfully. As Internet stocks were pummeled in the spring, shares of EMC, a data-storage company and his biggest holding, held up surprisingly well; they hit a 52-week high of $102.94 on Sept. 25. On April 3, 2000, Mr. Flynn told a reporter he was sanguine about his EMC shares, even as Nasdaq began in earnest its long slide, posting its fifth-worst decline at the time on that day. "I'm sure it'll come back," he said at the time. "I'm not going anywhere."
And come back it did. From a value of $583,000 in March, the value of his portfolio rose to $747,000 on July 21 to its peak in September. By the end of the year, Mr. Flynn's portfolio had given back some of its gains, but it wasn't until the beginning of this year that his losses really began to mount. On Jan. 3, the value of his holdings had plunged to $470,000, and by Feb. 21 they had tumbled to $440,000.
Then came the margin call. Mr. Flynn was in his barber shop with his wife when he got the call from his broker. "He said his firm had downgraded EMC, and he was afraid the stock was going to 20 and we had to sell 3,000 shares of EMC" to repay the margin loan, he says. "I turned to my wife," he says, "and she knew what had happened. We were both in pretty bad moods for a couple of days," he says.
Says Jean Flynn, his wife: "We knew [the margin call] was coming. Bill was upset because he had to sell his baby, EMC." She adds: "We'll get through it like everyone else. I think eventually it will come back, but it will take a while."
This isn't the first time Mr. Flynn's stockholdings have been shaved. He lost $50,000, then most of his retirement savings, in the 1987 crash, also after receiving a margin call. "It's definitely worse than 1987," he says. "But I feel stupid, because this time I was aware of margin and how it works." But it makes matters worse that the margin loan was used to buy 500 shares of Sycamore Networks Inc., an idea that was presented to him last spring by Bradford Kimball, his Morgan Stanley Dean Witter broker. Both Mr. Kimball and the firm decline to comment.
Shares of Sycamore have never recovered from the $150 level where Mr. Flynn bought the shares. Tuesday, Sycamore shares were at $15.88, up 25 cents, in 4 p.m. Nasdaq Stock Market trading.
Mr. Flynn isn't the only one in town with technology-stock losses, including some of his customers whom he urged to buy EMC while snipping their hair. "I got two calls from Florida" on Feb. 15, the day he got the margin call, he says. "The other day I got one from a guy with a place in Dennis who left a message on my machine asking what the hell was going on," he says. "I tell them it's a good buying opportunity," he says.
His local buddies are down too. Ron Danforth, an owner of a local direct-mail business who used to drop by Bill's Barber Shop regularly, is down about 40% on his portfolio, though he has made some money lately through purchases of options. Mr. O'Keefe is down about 50% on his stockholdings, though he was lucky enough to sell some shares of EMC this summer to help pay for his daughter's college tuition.
Mr. Capobianco, who was the only naysayer in the bunch last year around the shop, is down only about 12%, thanks to his stubborn avoidance of tech stocks last year. He recalls that in 2000, "everyone came into the shop with a story about the next great thing." Now, he says, "there's an awful lot of quietness."
Like so much clipped hair falling silently to Mr. Flynn's floor. |
