"Wild horses couldn't drag me back into stocks. Rather than gamble in this market, I might as well go to Las Vegas." So says Curtis Beusman, owner of a sports-medicine clinic in Mount Kisco, N.Y., and he is not talking theory. During the past several years, Beusman has dumped $300,000 worth of stock, more than 80% of his holdings. He is far from alone. Eleven months after last year's crash, most individual investors are avoiding stocks as if they were poison. Some Wall Street executives fear that many of these investors may be leaving the market for good, to the detriment of brokerage firms and future bull markets. Says Hardwick Simmons, vice chairman of Shearson Lehman Hutton: "The small investor is an endangered species."
With good reason. Insider-trading scandals, capped by this month's sweeping fraud charges against the investment firm Drexel Burnham Lambert, have convinced small investors that the Wall Street game is best played by the well-connected. Faced with the market's volatility in the past year, intensified by program trading, these investors fear getting caught up in avalanches beyond their control. At the same time, rising interest rates are attracting them to secure, fixed-income investments, typically bank certificates of deposit and Treasury bonds. The small-timers' absence from the stock market is dampening the averages and reducing business for brokerage houses. To win them back, both the markets and the brokerage industry have launched campaigns to reassure investors that Wall Street is solid and equitable.
So far these moves have failed to be persuasive. As of January, individual investors accounted for only 23% of all trades on the New York Stock Exchange, down from 29% last October and 50% in 1970. On some days their participation drops as low as 10%. The rest consists of transactions carried out for institutional investors, including brokerage houses trading for their own accounts and pension funds.
Despite the slump in small-investor trading, individual shareholders still control the majority of stock listed in the U.S. But they have sold off more stocks than they have bought during 16 of the past 17 years, while institutions have been net buyers. Sindlinger & Co., a research firm, estimates that only 3.7% of all U.S. stock-owning households have immediate plans to buy more shares, down from 35% near the peak of last year's bull market.
Such widespread avoidance of Wall Street is producing some painfully quiet days for traders. A year ago, volume on the New York Stock Exchange often exceeded 200 million shares a day. Since the crash, it has typically reached just 160 million shares. Meanwhile, the Dow Jones average has drifted down from a high of 2169.45 three months ago to a low of 1978.66 during August. Last week the stock market was buoyed somewhat by a sharp improvement in U.S. trade: during July the spread between exports and imports narrowed to $9.5 billion, down from a $13.2 billion deficit the previous month. In reaction, the Dow rose 29.34 points, closing the week at 2098.15.