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Indeed, a study by SEC staffers has shown that when publicly traded firms announce major investments in long-term research and development, their stock prices tend to rise. One example frequently cited by marketplace defenders to show that investors can still embrace long-range results: Genentech, the California-based biotechnology firm that went public in 1980 to a tumultuous market reception, even though it had not yet brought out its first products.
As for the ability of U.S. firms to compete internationally, some experts cite other factors besides stock-market pressure, like the cost of borrowing money, as reasons why American companies tend to focus on the short run. Says Frederic Scherer, an economist at Swarthmore College: "The cost of capital is higher for Americans, which means they have to show an earlier return on their investments. Cheap money allows the Japanese to take a longer view."
What seems abundantly clear, though, is that the quick-reacting computerized market is faster and more brutal in punishing corporate managers who make mistakes or whose company or industry is badly positioned. But some experts also feel that, over time, the volatility introduced by program trading will flatten out.
At the SEC's request, the Big Board has taken a small stab at curbing the ups and downs but with little success so far. On Sept. 19, the N.Y.S.E. experimented with a procedure of informing the trading floor half an hour before closing of the major holdings at that time in the stocks that compose the Dow. The aim was to allow counterpositions to be built up by competing traders, and thereby smooth some of the program-trading swings. The SEC hopes to repeat the experiment in December. The problem, though, is that the times when the market gyrations will take place are almost impossible to predict.
Whatever regulatory tinkering is tried, current stock-market trends cannot be entirely reversed. Some of the benefits that computerized trading confer on institutional investors vs. individual investors are permanent. One of those advantages is the ability to buy and sell entire portfolios of stock at once, rather than individual issues. Admits SEC Commissioner Joseph Grundfest: "One of the wonderful things about Wall Street has been that the small investor could lay the same bets as the big boys. Now you might need $9 million to play." He adds, "If you're not computer sophisticated, you're behind the eight ball. As a practical matter, small investors can't compete in program trading." Unless, of course, they become institutional investors themselves through mutual funds, which seem likely to continue to grow.