Dow Jones: Getting Personal – Advisers Nudge Fearful Clients Toward Stocks

Dow Jones: Getting Personal – Advisers Nudge Fearful Clients Toward Stocks

Advisers Nudge Fearful Clients Toward Stocks

“Fear is a stronger emotion than greed,” says an adviser

NEW YORK — Some advisers are nudging fearful clients back into stocks–while continuing to calm investors losing patience with the market’s volatility.

“Fear is a stronger emotion than greed,” said Todd Morgan, senior managing director at Bel Air Investment Advisors in Los Angeles, which advises about $6 billion in assets for high-net-worth investors.

Morgan has changed his call since August, when he told clients, “It’s too late to sell and too early to buy.” Now, he said, “the stock market is worse than the economy, and stocks…are very, very cheap.” But he added, “people are frightened.”

Morgan moved his high-net-worth clients heavily into bonds just before the market collapse in 2008 and they never came out, he said. “Our clients went into a bunker, then the storm hit and after the storm people didn’t want to get back in,” he said. He’s just now starting to convert small amounts of bonds into equities, but said, “People have a muscle memory of 2008 and early 2009; it’s hard to get them to put more money into equities.”

Some investors are losing patience with the market’s volatility, he said. “I’m trying to encourage people to stay the course,” said Morgan. “When it’s time to go up, markets go up 2%, 3%, 4% a day for a week, and there’s no time to get in. By the time you say, “I feel comfortable now, everything’s OK,” the market’s up 10%, 15%.”

David Yeske, managing director at Yeske Buie in Vienna, Va., said he, too, is fundamentally optimistic. While the market’s recovery will be slow and choppy, it’s inevitable, Yeske said. However, the recent volatility will be the “nature of the beast” until a more robust recovery takes hold, he said.

The average portfolio at Yeske Buie is around $2 million, and about 80% of the firm’s average preretirement portfolio is invested in stock mutual funds, with the balance in bonds. Throughout the entire economic recession, Yeske said, he’s stuck to his global, diversified portfolio, with a stable bond portion and regular rebalancing.

Clients have stayed put, but increasing volatility has brought more anxiety, which means he needs to repeat his message. “We’re fielding more phone calls and holding more face-to-face meetings,” he said.

Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, N.Y., said that barring some huge, unexpected global event, another 6% to 10% increase in stock values is not unreasonable based on corporate earnings and a recognition that the U.S. is very unlikely to fall into a recession.

In late May, he shifted about 10% of his clients’ assets into cash from stocks in anticipation of volatility, though he never expected such high levels of volatility. He moved those assets back into the market in the third week of September, adding across the board to his clients’ investments.

At that time, the market was assuming that the U.S. was headed for recession, that China would suffer a hard landing and that Europe would enter a recession in the fourth quarter or 2012, Pursche said. Last week, traders recognized that the U.S. probably won’t fall back into a recession and that “things weren’t quite as dire as was priced in,” he said.

But that doesn’t mean his clients are sanguine. “No one is comfortable with this market.” Clients became more anxious when they received their most recent quarterly statements, he said, but not nearly as fearful as they were at the end of 2008 and in early 2009, he said