A.G. Edwards president speaks on U.S. markets, analysts and investors
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Jerry Siebenmark
The stock market's recent rocky ride has a lot of experts -- and pseudo-experts -- opining about the direction of the market over the short and long terms.
And it's no different for Benjamin Edwards, president, chief executive officer and chairman of the St. Louis-based investment company, A.G. Edwards & Sons Inc.
The great-grandson of Albert Gallatin Edwards, the company's founder, Edwards is known for unapologetically speaking his mind: He has been unhesitatingly critical of his own industry's practices.
In 1994, for instance, Edwards openly scolded other major investment firms for tacking on additional fees at a time when the stock market was soaring. Those extra fees, he charged, were gouging smaller investors out of the market.
Edwards, who late last week was visiting the company's Wichita office (one of 600 across the country), had something to say about the latest market turns, bulls, bears and American business when he sat down to speak with the Wichita Business Journal.
Predictions and human nature
By all accounts, the stock market has been on an incredible run of late, surpassing the predictions of many of the nation's largest investment firms. And for a while, it seemed like that run was unstoppable. But in mid-July the Dow Jones Industrial Average began to slip and continued to slide through Aug. 4, when it plunged nearly 300 points.
Edwards said that may have halted the bold 10,000 prediction that some were proclaiming.
"Since we've had a 300-down day and some more down days, people are not being so aggressive in their predictions," Edwards said. "We generally react to the most recent past and tend to extrapolate it, which is not very smart. But that's what we do.
"I guess it's human nature. We make a lot of cerebral decisions and then we react emotionally to the most recent stimulus. We had a broker over 40 years ago in one of our New York offices that called these things when the Dow would be down a big chunk, and he'd say, 'Well it's a healthy correction that makes you sick.'
"Of all the years I've been in the business, I think that describes it as well as you can. It's probably good for the market that it's been down -- to show people that it doesn't go to the sky, that gravity still functions and that there can be excesses in it and they need to be let out. But it doesn't make it any more pleasant when it happens."
The 'big correction'
The "big correction" that Federal Reserve Chairman Alan Greenspan has talked about hasn't happened yet. According to Edwards, the 300-point drop was nothing more than a burp.
And Edwards said he doesn't believe the market is a bear -- yet.
What is unknown, and worth watching, Edwards said, will be the reaction of investors upon the heralding of a bear market. Since a great number of securities brokers and investors have never seen a bear market, he said, it will be very difficult to predict their response to a downturn.
"How will they react if they get a legitimate bear market -- which I would say would be the Dow down 1,500 to 3,500 and then stay down?" Edwards asked. "And people get all depressed and come out with books and reports of why this is going to last forever, and its going to go down and disappear into a hole in the ground.
"They'll work out the same rationales that we work out now -- that it's going to the sky. And it's an unknown and (something) we may see soon."
What is the best way to avoid a massive sell-off if the market were to take a significant dip? Not surprisingly, Edwards said brokers are the key.
"You're dealing with something you're very close to, which is your savings," he said. "You're dealing with the unknown, which is the future. Nobody knows it. So you want someone who has been a veteran of this and a scholar of this, to share that uncertainty with you and try to improve your chances of making a rational, common sense decision.
"I could practice medicine from what I get on the Internet, but I don't want to do it. I want somebody who's gone to school and done this to interpret the information he has. And I'm willing to pay for it."
Edwards said the best blueprint for successful investing in an uncertain era is to select those companies that are well-managed and have shown they can withstand downturns.
For those who are just plain fearful of the market but still want to invest should do so through dollar cost averaging. An investor with $20,000 to invest should do so in increments over a long period of time, say $2,000 every other month for a period of 20 months.
"And if the market goes down you buy more shares at a lower price," he said. "If it goes up, you buy fewer shares. It's the only gimmick in our business that really works."
The American business era
If there ever was a time for business to prosper in the nation, it is now. Edwards said businesses going public have been treated well in the market and for those businesses already well-established, the opportunities are still there.
"I've never seen corporate America in better shape," he said. "I think that business reasons to continue to put money in stocks are still there. I don't see any competing investments that are more attractive."
And even though pundits insist the Asian market crisis has had and will continue to radiate negative effects upon the United States, it has also pushed companies to compete more effectively while keeping inflation at a standstill.
"By all the economic books, we should be having higher rates of inflation," Edwards said. "I think the Pacific Rim malaise, Indonesia, Malaysia and what not, is probably the biggest single factor why we haven't had a return of a higher rate of inflation.
"I think manufacturers are reluctant to raise their prices because they know that in Malaysia and Indonesia there are all sorts of manufacturing facilities that would love the business. Labor unions have been reluctant to push up prices on wages because they know people could export their labor to these areas and at a much lower cost.
"And it helps to have Greenspan at the Fed, who fears inflation more than anything else because it would price us out of world markets. I think that's probably holding down what would naturally be a return to inflation."
Activity within the government also has had an effect on the prosperity of American business, though Edwards believes three factors could change all that.
"The big reasons how we would price ourselves out would be inflation, a new layer of taxes ... and something that Washington would cook up, like a big healthcare bill," Edwards said. "And I don't think that's likely with a Republican Congress.
"So with a Republican Congress and Greenspan in, I think it looks good for the foreseeable future for American business."
c 1998, Wichita Business Journal
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