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Undeniably, individual investors, who still own $1.95 trillion in equities, or two-thirds of all U.S. stock, have been getting rid of their holdings at a swift clip. In 1985 U.S. households sold $122 billion more in stock than they bought, a record. This year the net sales are projected to reach $105 billion.
But this does not necessarily mean that individuals are getting out of the stock market entirely. Instead, increasing numbers of Americans are returning as institutional investors themselves, in the form of shareholders in mutual funds. Nearly half of the 47 million U.S. households that own stock now do so through mutuals. In the past two years alone, the number of mutual-fund shareholders increased by 2.7 million. Says James Van Horne, a professor of finance at the Stanford University Business School: "Individuals increasingly are becoming indirect stock owners." One of them is Bill Blankemeier, 31, a regional sales manager for ITT in Oak Brook, Ill. Blankemeier moved 70% of his portfolio into mutual stock funds after taking a mild beating on several of his own stock picks. Says he: "Half the time, I'd do O.K., and half the time I'd blow it. I'd rather have someone invest for me who has the time and the expertise."
There is considerable irony in the retreat by individuals. Virtually all of the stock market's current volatility has been made possible by computers. And these in turn were originally installed at New York's Big Board to offer easier, cheaper trading to tempt back small investors who had begun to flee to bonds and money-market accounts during the high-inflation '70s. In all, the Big Board spent $200 million on its modernization during the past five years. When the stock market perked up again starting in the early 1980s, the major institutional investors quickly spotted the advantages of scale and sophistication offered by electronics. Says Richard Nelson, a vice president with Manhattan's Bankers Trust: "Ten years ago, you simply could not sell or buy more than 20 or 30 stocks at the same time. Now we routinely sell multiples of 500."
Much of the capacity to do that is invisible behind the traditional pillared facade of the New York Stock Exchange. There is still plenty of human hubbub on the trading floor, but less than there used to be in the pre- electronic '60s. Glowing cathode-ray screens now festoon the marble columns of the venerable hall. Overhead, gold-painted tubes conceal telephone and computer cables. Some 450 specialists stand guard at 14 trading posts, a few more than in older days, matching buy and sell orders from stockbrokers.
In the bowels of the exchange, and scattered around the remainder of New York City and its environs, are the banks of IBM and Tandem computers that run both the Big Board's SuperDot (for designated order turnaround) system and the equivalent operation for the American Exchange, which is known as PER (postexecution reporting). These systems record trades and relay confirmation back to brokers. Officials from both exchanges maintain rigid secrecy about the computers, which are owned and operated by a joint affiliate known as the Securities Industry Automation Corp. It is said, however, that S.I.A.C.'s number-crunching capability rivals that of NASA's Mission Control.