A trader stands outside the New York Stock Exchange during the sell-off.… (Mario Tama, Getty Images )
Steve Dorsey took the stock market's teeth-clenching sell-off in stride Thursday — but only because he sold all the stocks in his retirement account six weeks ago.
The 63-year-old attorney from San Marino feared the debt crisis would cause the market to tumble, and he was willing to forgo potential gains to sidestep what he feared could be a huge loss.
"I thought I might miss 4% or 5% upside, but I might miss a big downturn," Dorsey said. "I went through 2008 and the dot-com one too."
The American public's once-fervent love affair with stocks has taken a beating in recent years, and the latest collapse is likely to only intensify investors' suspicion and fear.
The recent furor over the debt has further spooked investors who already were nervous over chronic U.S. unemployment and the uncertain economy.
After flocking to the market during the late-1990s Internet boom, the faith of small investors has been shaken by two bruising declines — the dot-com bust in 2000 and the global financial crisis in 2008.
During the good times, small investors had an almost symbiotic relationship with the market. Investors needed stocks for steady gains to outpace inflation and pay for their retirements, and the market relied on steady contributions from individuals to power higher.
But despite the continuing advice to own a large helping of stocks in retirement and other long-term accounts — and to stay put during turbulent times — many people have grown weary of the volatility, experts said.
"People are really frightened as the market goes down," said Mark Wilson, a financial planner at the Tarbox Group in Newport Beach. "People are picturing what went on in 2008. They're flashing back to this scenario."
Their dismay is evident in the money pulled from stock mutual funds in recent years.
Small investors have yanked a net $350 billion out of U.S. stock funds in the last 51/2 years, according to the Investment Company Institute. They even pulled money in 2009 and 2010 when the market rallied in the aftermath of the financial crisis.
Other indicators likewise point to a souring on stocks.
Nicholas Colas, chief market strategist at ConvergEx Group in New York, measured small-investor sentiment earlier this year using Google Trends, a portion of the popular website that measures search patterns over time.
Terms such as "investing" and "stock investing," hot topics during the dot-com craze a decade ago, had fallen sharply in the last seven years, according to Colas.
The most popular investment-related term had become "saving," with 6.1 million searches a month, according to Colas. That topped 823,000 for "investing" and 60,500 for "stock investing."
Wilson, the financial planner, sees the changed attitudes every weekend in a men's soccer league in which he plays. Friends who once were enamored of stocks now want little to do with them.
"They all hate stocks today, and they hated them more over this last week and a half than they ever did," Wilson said.
Still, many small investors are like John McLamb, a real estate agent from Charlotte, N.C.
The 25-year-old is hanging onto his stock holdings, figuring that's the smart move in the long term. But that hasn't made the last few days any easier.
"It is scary for a regular person," McLamb said. "I have time to recoup my losses because of my age. But you keep hearing for three years that jobs will be created and we'll get past this and you wonder what can you do?"
Some investors who were spending their lunch hour Thursday in the food court near the Omni Hotel in downtown Los Angeles said they were not rushing to sell.
Ray Rath, 55, a business appraiser for Price Waterhouse Cooper who lives in San Marino, said he planned to keep his stock holdings, which are primarily exchange traded funds and index mutual funds.
"The stock markets are pretty emotional and tend to be highly volatile, with irrational exuberance and exorbitant pessimism. People have to look to the longer term," said Rath, who was toting a chicken bowl back to his office. "Hopefully, saner heads will prevail and people will realize that the longer outlook is reasonable.... You invest for the long term and not the short term."
Doug Lewis, 41, a Los Angeles city firefighter who lives in Gardena, said he traded stocks through a brokerage account and also held stocks in investment accounts. His holdings include Sirius XM Radio Inc., Microsoft Corp. and other tech stocks. He said he was "absolutely not" planning to sell despite the market swoon.
"It's kind of scary, but on the flip side of that I'm optimistic it might create some buying opportunities for the small-time investor like myself," he said. "I'm looking real hard at GE, I like the dividend and it's down pretty significantly today. The European debt crisis is a big concern, so I guess you could say I'm cautiously optimistic."
Steve Johannsen, 43, an accountant from Los Angeles who holds stocks and mutual funds, said he too was standing pat.
"It's happened before. It doesn't really faze me," Johannsen said. "I figure it will come back. I don't see any fundamental problems with any of the investments I have."
In fact, Johannsen said, the two-week slide could present buying opportunities.
"It's in my head. I haven't pulled the trigger, but I'm thinking about it."