Cold market scares off stock investors

Paul Clinton

NEWPORT-MESA -- Many local investors empowered by the out-sized market

gains of the 1990s have returned to financial advisors after watching

their portfolios plummet with the Dow, Nasdaq and S&P; 500.

Dennis Renter, a certified planner with the Newport Beach branch of

the Associated Financial Group, said a woman who came to him recently had

built a $400,000 nest egg into $1.8 million and watched it fall back to

$200,000.

“I had a lot of people who did it themselves and lost 80% to 90% of

their money,” Renter said. “Now, they want a professional.”

Those Newport Beach investors, in one of the state’s wealthiest

cities, haven’t been able to dodge Wall Street’s nearly five-year swoon.

As the Nasdaq fell to 1,375 in early trading Wednesday -- hovering

near a level not seen since 1997 -- investment advisors in Newport Beach

said they’ve seen their clients flee risky technology stocks for the

safer havens of real estate, bonds and gold. On Thursday, the Nasdaq

climbed to 1,459.

Tuesday’s announcement that long-distance carrier WorldCom Inc.

fraudulently overstated its earnings by $3.9 billion was just the latest

jolt to already skittish investors. The long list of corporate accounting

scandals -- including Global Crossing, Enron and Tyco -- has led to a lot

of the bearish sentiment on Wall Street, Renter said.

“Now it’s a credibility question,” Renter said. “Nobody trusts

accounting or earnings.”

Despite month after month of declines, Renter hasn’t thrown in the

towel on stocks. When advising his clients, he recommends a diverse

portfolio of 60% stocks and 40% bonds.

His stock strategy is made up of 30% in small and mid-size companies

he views as undervalued, 15% in real estate trusts and 15% in

international stocks.

A handful of Real Estate Investment Trusts, or REITs, have also

performed well as technology stocks continue to dive.

One of those companies is Newport Beach-based IMPAC Mortgage Holdings.

The company’s stock, which trades on the American Stock Exchange under

the symbol IMH, has climbed more than 60% this year.

IMPAC executives, who buy mortgages from other lenders, have taken a

more conservative approach to business dealings, President and Chief

Executive Bill Ashmore said.

“We have pretty straightforward accounting,” Ashmore said. “The stock

has been a good growth story. . . . Real estate is going to remain

strong.”

Ashmore’s comments came on Wednesday, the same day a report on new

home sales in May showed an 8.1% jump, the largest in six months.

A popular magnet for local investors looking for bonds has been

Pacific Investment Management Co., or PIMCO, also based in Newport Beach.

While many investors have been losing their shirts on stocks, managers

of the city’s $110-million portfolio have stuck to bedrock government and

high-quality corporate bonds.

The city has also seen declines in its portfolio, but not because it

has been investing in risky technology stocks, said Dick Kurth, the

deputy administrative services director.

The city has strict guidelines in place that prevent Kurth from

sinking any public money into stocks.

“Our investment income has gone down over the last four years because

interest rates have gone down,” Kurth said. “We don’t own any WorldCom.”