Investors taking flight to safer nests

Unpredictable stock market sending money to other investments

Poudre River Valley Trust’s Dave Mascio has a name for it: He calls it a “flight to quality.”

That’s a fancy way of saying investors are looking for a safer place to put their money now that the stock market is in turmoil.

“We’re going to start the third year of decline,´ said Paul Gogela, president of Central Discount Stockbrokers in Fort Collins. At its peak, Gogela said, the Dow Jones Industrial Average reached about 10,500. Now it’s hovering around 7,800. The Nasdaq, which primarily lists tech stocks, has gone from about 5,200 to 1,200.

Financial storm

There is a financial storm going on and investors are looking for a port. That brings us back to the “flight to quality” phrase that Mascio uses. “When investors get nervous, they do a flight to quality,” he said. “They go to triple-A-rated bonds and 40-year Treasuries. There’s a lot of money for a low yield.”

Mascio should know. As chief investment officer for Poudre River Valley Trust Co., a wealth-management firm, he deals with lots of money. And right now, people are just interested in keeping what they’ve got.

“There’s a term out there: ‘capitulation.'” Mascio said. “It means a lot of people are just throwing up their hands and quitting. The trend now is to buy fixed assets. We haven’t been buying bonds for about a year now. We’re parking a lot of money into cash or money-market instruments.”

Mascio said there is a great amount of opportunity in the market if people don’t commit everything to it. But patience is the key. “We should see a good rally around the holidays,” he said.

The reason for the current gloom is that the stock market burned a lot of investors not once, but twice, said Gogela.

“People didn’t understand what (the Internet and dot-coms) was all about,” he said. “Very few escaped. A lot of people lost pensions and savings.”

As the market started up again, people again began buying tech stocks, thinking they had an even better chance to get in on the ground floor of the Next Big Thing. Even Gogela got into the Internet boom for a little while, teaching his son about the stock market. He invested some money into Amazon for three days and watched its value soar before he took it out. “If I had kept it in until the end of the year,” Gogela said, “I would have a 1,200 percent gain.”

This was ridiculous to Gogela. Especially since the Internet didn’t seem to be backed up by anything solid. Multiply that by hundreds of companies and millions of people mesmerized by things like a 1,200 percent gain.

Keeping it liquid

“What I see is that they are trying to keep their money liquid,´ said Gogela of today’s investor. “They are moving into short-term bonds, CDs, Treasury bonds, even passbook (accounts). I have heard some are moving into real estate, but how much I don’t know.”

Michael Sanders, president of First State Bank in Fort Collins, said there is a rule of thumb when it comes to investing: “You take the number 100 and you subtract your age from it,” he said. “Then, you take the result and that’s the percentage you should have in fixed assets.”

Paul Hummel, an investment adviser for Home State Bank in Loveland, said he sees many people moving toward bonds and fixed annuities. “These are like a CD but an insurance company issues them,” he said. “They run for about six years and they yield about 4 to 5 percent interest. The attractive part is that you don’t start paying taxes until withdrawal.”

Larry Kendall, president of The Group realty company in Fort Collins, said real estate has become a refuge for some stock investors, but the stock market isn’t the only impetus. “The shock of 9-11 caused people to re-evaluate their priorities, and they reinvested in their home,” he said. “They got a bigger home and they invested in things like furniture and remodeling. 9-11 energized real estate, that and record-low interest rates and the stock market.”

Parents are buying condominiums and homes for their kids, and the average person is buying single-family homes and condos, too. If any segment of the market is slow, it is the commercial market. The rest of it, Kendall said, is hot.

Despite fears about a shaky, downward stock market, Mascio said the fast-profit that can be realized on Wall Street will make it attractive again when things start to turn around.

“There is a lot of money still out there,” he said. “People will go back into the market.”

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