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Why Scandals Shouldn't Cloud Long-Term View

January 13, 2002|Tom Petruno

Major financial market scandals rightly anger many investors and undermine confidence in Wall Street.

But the greatest damage they may do in the long run is convince some investors that everything connected to securities markets is a gyp and that investing isn't worth the effort.

It's an easy blanket argument to make against investing at times like this, as scandal after scandal dominate the headlines: Enron Corp.'s collapse; major brokerages accused of manipulating initial public stock offerings; and even last week's allegation that an Orange County teen took in $1 million in less than two months via an Internet-based Ponzi scheme (though that arguably constituted "investing" only for fools or for people who knew they probably were being scammed, but took a chance anyway).

Though fear of being ripped off on Wall Street is hardly unfounded, it may be more dangerous to allow that concern to justify the idea of playing it completely safe with one's savings, financial advisors say.

The stock market's performance over time, after all, will largely depend on a relative handful of fundamental forces--principally, the strength of the economy (and thus of corporate earnings) and the direction of inflation and interest rates.

An investor who in November 1986 was convinced by the Ivan Boesky scandal of that time that the market was totally rigged missed the chance to buy stocks when the Dow Jones industrial average was at 1,914.

Today, with the Dow at 9,987, it's obvious that the Boesky fallout, if any, didn't last long. A decade from now, the same will almost certainly be said of Wall Street's latest scandals.

Tom Petruno

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