Orange County Investors : Most Weather Their Worries, Some Prosper

Lt. Col. Lonnie Howerton let his Marine Corps discipline slip a little Monday as he monitored the progress that his tiny stock portfolio was making in the day’s roiling market.

On a lunch-hour visit to his broker in Laguna Hills, Howerton--who was in civilian dress for the occasion--jammed a clenched fist high into the air, shouted joyfully and jumped up and down when he learned that he had made a profit on the AT&T; stock he had bought toward the bottom of Friday’s skidding market.

Howerton, who called himself a “very small-time investor,� made $200 on the 100 shares of AT&T.;

By contrast, most of the dozen regular investors who gathered in the Charles Schwab & Co. Inc. discount brokerage office near Leisure World were subdued Monday. They were worried about the losses they took Friday and wondered whether the news would get worse.

That pretty well describes the activity at most brokerages around Orange County and the nation Monday. It was a day of ups and downs. It was a day of nervousness and relief. It was a day of volatile trading on the stock market.

After the Dow Jones industrial average fell 190.6-points Friday--prompting investors to worry about another crash--the market did an about-face and gained 88 points Monday. The increase came only after several steep drops, teasing investor fears of another disaster.

But there was no repeat of two years ago, and local investors seemed to take the market turmoil in stride.

Frank L. Randall III, resident vice president of the Merrill Lynch Pierce Fenner & Smith office in Laguna Hills, said his brokers spent a lot of time answering phone calls from nervous investors after the market crash in 1987.

Now the same customers, he said, “feel comfortable, that they have been there before.� Calls from customers, he said, were primarily to inquire about what stocks might be good buys.

“There seem to be more buys than sells,� agreed Jeffrey Kilpatrick, president of Newport Securities in Costa Mesa.

The regional brokerage, which specializes in the stocks of county-based companies, was fairly quiet Monday, in contrast with two years ago, when the atmosphere was tense and marked by the constant ringing of telephones and soft swearing of brokers watching favorite stocks take nose dives.

Kilpatrick said investors have figured out now that “the gross numbers just aren’t all that meaningful, now that the Dow Jones is so high.� While a 100-point dive from an 800 Dow is frightening, he said, a 200-point drop from a 2,600-point Dow “doesn’t make people panic.�

There was little panic among county companies, even though few fared well Monday. While the Dow gained ground, the broader markets--where most local stocks are traded--did not fare as well. On the New York Stock Exchange, more stocks lost value than gained Monday.

In Orange County, just 20 of the largest 126 public companies posted price increases, while 74 lost value. The remaining 32 finished unchanged.

The largest gain was a 7.4% increase, to $4.50 a share, by Irvine-based National Education Corp.

Illustrating the fickleness of the market, EIP Microwave of Newport Beach, which Friday bucked the downward trend to post a 22% gain, was the loss leader in the county Monday. The stock dropped 18.2%, losing the entire dollar it had gained on Friday, to finish the day at $4.50.

The fate of local firms caused barely a stir at the Crowell Weedon & Co. brokerage office in Laguna Hills. At 8 a.m. Monday, Leon Bergsman, 86, was the only investor on hand to monitor the action.

“Somehow the market doesn’t draw them in when it is going down,� Bergsman said of the absence of other investors. “When it is going up they are all here. Now they don’t have the stomach.�

As the morning wore on, however, others took chairs alongside Bergsman.

These investors, mostly retired Leisure World residents in the market for the long run, were not about to make rash moves. They did not even seem to be terribly concerned that the electronic ticker above the counter was not working.

Bergsman, who went through the 1929 stock market crash as well as Black Monday two years ago, joked that he came in early because “I wanted to wave goodby to my money.�

He said his stock market investment is in “the substantial six figures.�

Bergsman said he had no intention of selling his stock, which is in such blue chips as IBM and Eastman Kodak. Rather, he said, “I was thinking of buying a couple of things.�

He said he expected “a little rally� on the market Monday and another drop later in the week, when he will pick up the stock he wants.

Alan Vega also figured that he will be a buyer this week. Like other investors watching stock quotes on the computers at the Charles Schwab office in Laguna Hills, Vega said the key to making money on the market is patience.

But he said he likes the excitement of frequent trading. “I’m a stockbroker’s dream,� he said, a reference to the commission brokers take every time a client buys or sells.

Vega said he is on the lookout for attractive stocks to buy, with prices down for many issues.

Despite the volatility of the market, he said he is confident about the strength of the economy: “There will be no downturn. People are paying their bills. And I should know. I’m a bill collector.�

Vega is one of the regulars at the Schwab office. He and a group of about a dozen friends spent Monday with eyes glued to the computer screens as they kept track of how they were doing. The regulars buy and sell frequently and monitor the market’s antics on a daily basis.

They divide into two basic groups. At one computer were the bears, those who are betting on a further drop in the market. Some insisted that Monday’s rally was only a temporary aberration and that there is more bad news, perhaps even a recession, in the offing.

At another terminal, the bulls congregated. They contend that the market is strong and are looking for the chance to buy stocks at bargain prices and watch them climb.

The specialists in the county seem to side with the bulls.

Chapman College economics professor James Doti, for example, said he is optimistic about the market because the price-to-earnings (PE) ratio of most stocks is in the fairly conservative low teens.

Doti--whose own stock portfolio is almost completely limited to shares of a local company on whose board he serves--said there is no comparison between current market events and the crash of Oct. 19, 1987.

“Then, the PE ratio was 20.5 Now it is below 12, and the historic norm is 13 to 14. . . . But just as happened two years ago, Friday’s plunge will probably lead the Federal Reserve Board to drop interest rates a notch or two.�

And that, Doti said, will increase liquidity and “may put off an anticipated recession and keep our recovery going.�

O.C. BULLS AND BEARS

Peter Churm, chairman, Fluorocarbon Co.

“I think the market was ready for an adjustment. Something is terribly out of kilter with these crazy buyouts that add nothing to the economy. Maybe this will put a stop to it. That’s my wish.�

James Doti, professor of economics, Chapman College:

“I subscribe to the random walk hypothesis, which can be summed up basically by saying that if you throw a dart at the financial page and pick your stocks that way, then over the long run you will do about as well as with any other method of forecasting or predicting the market.�

Allan L. Bridgford, president, Bridgford Foods:

“I have the same wait-and-see attitude as a personal investor in the stock market. As a long-term investor, I see this as a short-term situation, and in the long run things will probably even out. Today the market looked better than was predicted.�

Jeffrey Kilpatrick, president, Newport Securities, Costa Mesa:

“The wisest investors two years ago were those who bought. On an individual level, I see people looking at this as more of an opportunity than a problem. Business today (Monday) was brisk, but there wasn’t any panic.�

Thomas Hammond, chairman and president, Hammond Co., Newport Beach mortgage bankers:

“Today the bond market dropped, so yields went up. That balances us out from Friday. We were hoping to see a repeat of what happened in 1987: The market drop created a bull market in bonds and lower mortgage rates. That doesn’t seem to be the case this time.�

O.C.’S WINNERS AND LOSERS

Monday’s Price Percentage Company Price Change Change BIG GAINERS National Education Corp. $7.50 +$0.50 + 7.4 Emulex Corp. 6.00 +0.375 +6.7 Pacesetter Homes 8.00 +0.50 +6.7 Gradco Systems 17.875 +1.00 +5.9 Provena Foods 4.625 +0.25 +5.7 BIG LOSERS EIP Microwave 4.50 -1.00 -18.2 Cam Data Systems 3.25 -0.50 -13.3 MAI Basic Four 4.00 -0.50 -11.1 Laser Precision 4.875 -0.50 -9.3 Pacesetter Business Properties 5.50 -0.50 -8.3

Source: Newport Securities