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For the Little Guy, the Thrill Is Gone From Wall Street

June 26, 1988|PAUL RICHTER | Times Staff Writer

NEW YORK — When the economic news is bad, the stock market goes down. And when it's good--sometimes the market goes down, too.

Individual investor Sam Dulberg has noticed recently that good economic news, which logically should help stocks, has often aroused fears of rising interest rates and dumped the market. It's one more reason he's convinced that the stock market has gotten just too volatile.

"You've got to have holes in your head to think that way, but that's how a lot of them are on Wall Street," says Dulberg, 79, a retired engineer who lives in West Los Angeles. "And the market just drops."

Dulberg tries to protect himself from such volatility by holding on to his stocks for several years. But the market's gyrations seem to have convinced many other individual investors that they ought to shun stocks entirely.

Indeed, eight months after the stock market crash ushered in a bear market, the individual investor seems more convinced than ever that the market is no place for him. Wall Street, suffering from his absence, can't agree on what exactly drove him away or when he'll be back.

"There are a lot of different views about what the individual investor is going to do next," said Joseph Hardiman, president of the National Assn. of Securities Dealers. "We do want him to do something."

The question is of obvious concern to the brokerages, some of which have seen their commission revenue drop 45% as small investors have sought the safety of money market funds, certificates of deposits and similarly cautious investments. But the little guy's involvement is important, too, for other market participants and the thousands of companies that issue stock.

Individual investors account for only 20% of daily trading activity, with the remainder attributable to big institutions such as pension funds and insurance companies. But individuals directly own about 60% of shares and control another 10% through mutual funds.

Individual stockholders lend stability to the market because they tend to hold on to their shares for years, while institutional investors trade rapidly in search of short-term gains. This provides a diversity of views: When the big investors clamor to sell, it is often the individual investor who is willing to buy.

And individual investors play a key economic role by buying the shares of companies that are offering their stock to the public for the first time. Unless there are signs of broad interest from individual investors, institutional investors who are needed to take part in initial offerings won't participate.

Because the little guy is so important, Wall Street market analysts have been watching closely in recent weeks to see if a strong market would lure him back. They were disappointed.

So far in June, as the market has repeatedly carried the Dow Jones industrial average to new post-crash highs on above-average volume, individual investors sold stock about 20% more often than they bought, the records of Merrill Lynch & Co. show.

"Individual investors have been using these rallies to unload their stocks at a good price rather than to buy more," says Richard McCabe, manager of Merrill's market analysis department. "They're selling into the rallies."

Market Faith

There is other evidence of the individual investor's sour mood. The post-crash flight from stock mutual funds, which stopped last December and January, has resumed in the past three months. A net $750 million flowed out of stock funds in March and April, and the outflow was believed to have increased last month.

The individual's defection is apparent in the sharp falloff in the issuance of new stocks. So far this year, 151 companies have sold stock for the first time, raising $1.8 billion, according to the Institute for Econometric Research. That number is down 46% from the 278 firms that had raised $5.8 billion going public by this time last year.

Meanwhile, surveys of investor opinion show faith in the market near an all-time low. A poll by Sindlinger & Co. of Wallingford, Pa., found only 5% of individual stockholders planning to buy stock soon; as recently as January, more than 20% said they had plans to buy more shares.

The reasons for the individual's departure is a matter of passionate dispute among the market pros. Some say it is only the bear cycle of the market, inevitably reasserting itself after a long bull market.

Others, notably including officials of retail brokerages and smaller investment firms, assert that investors are recoiling from the volatility caused by the high-speed, computer-directed institutional trading practices known as program trading. A corollary to this view is that the individual may stay away longer--and many may stay away permanently--unless curbs are put on these practices.

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