High Anxiety

December 7, 2007

MONDAY, AUGUST 15, 2011        ©2011 Dow Jones & Company. All Rights Reserved

Once Bit, Rich Shy From Risk of Stocks
By Robert Frank

When stock markets swooned in 2008,
Alan Mantell lost about 15% on his

Now, the multimillionaire real-estate
investor and business consultant is more
insulated from market quakes, after
putting more money into cash and private
businesses and less into U.S. stocks.

“Today, my first principle of investing is
do no harm, don’t make major mistakes,”
said Mr. Mantell, president of New York-
based Mantell Advisory LLC. “It’s not
about chasing returns anymore. For me,
it’s about real diversification and not being
so dependent on traditional equities.”

After taking big risks and big losses
in 2008, wealthy investors have become
the Cassandras of the financial world,
hunkering down with cash, gold,
farmland and other haven investments.

Their “fear portfolios” largely protected
them from last week’s market gyrations,
when the Standard & Poor’s 500-stock
index spiked up and down more than four
percent a day for four days straight.

Yet they are also imposing a national
price. Recoveries are often led by the
investing and risk-taking of the wealthy,
and the rich have traditionally been
more optimistic about the economy than
everyday investors. Yet current surveys
show the rich are among the most
pessimistic about the economy. Rather
than investing in stocks or companies
that can create jobs, they are betting on
continued volatility and slow growth
by hoarding cash, gold and other safety

“If the wealthy run into the proverbial
bunker, then the economy will falter,”
said Mark Zandi, chief economist at
Moody’s Analytics, a division of Moody’s
Corp. “A loss of faith in our economy can
quickly become self-reinforcing and self-

Not all the rich are playing it safe, of
course. Spectrem Group, the Chicago-
based research firm, found that a third of
millionaire investors planned to add to
their stock holdings in July, just before
the markets faltered. Bel Air Investment
Advisors in Los Angeles, like many
wealth managers, encouraged its clients to
increase their stock
holdings to 40%
from 35% earlier
this year, saying
that “2011 will be
another year where
stocks outperform
bonds.” And they
still could. A
spokesman for Bel
Air didn’t return
calls for comment.

For now, however,
the worried
wealthy look like
the smart money.

Their caution
signals a sweeping
shift from the
mid-2000s, when
many of the rich
took a casino approach to rising markets.

In 2008, households with $1 million or
more in investible assets lost an average
of 30% of their investments, and nearly
one-fifth of millionaires lost more than
40%, according to Spectrem Group.

Now, the wealthy are more focused on
preserving their fortunes than increasing
them. Michael Sonnefeldt, the founder of
Tiger 21, a New York-based investment
club for multimillionaires, said that his
members now hold an average of about
14% of their assets in cash, about double
that of the mid-2000s. Tiger members
have an average of about 5% of their
investments in gold, although some
members have more than 20%.

“Our members battened down the
hatches two or three years ago, and
they’re still battened,” Mr. Sonnefeldt
said. “Right now, it’s easier to save a
buck than make a buck. So our members
have taken a lot of risk off the table.”

That may have cost them in the form of
lower returns in 2009 and 2010. A survey
by the Institute for Private Investors found
that investors with investible assets of $30
million or more earned an 11.3% return
in 2010, compared with a 15% gain for the
S&P 500 Index.

Tommy Gallagher, a wealthy investor and
former Wall Street executive, said he was
kicking himself last year as stocks rallied
and his safer investments earned weak
returns. He came close to putting more
money into stocks, but “luckily avoided the

“It was making me crazy all year,” he
says. “Who wants to be the schmuck at the
party who’s not making any money while
everyone else is making money.”

Gregory Curtis, chairman and founder
of Greycourt, a Pittsburgh-based wealth-
management firm, said he and his clients
never really believed in the recovery
story, because it relied on a large liquidity
injection by the Federal Reserve, rather
than stronger economic fundamentals.

“I’m sure there were some wealthy
families who were drinking the Bernanke
Kool-aid and got burned,” he said. “But I
don’t know many families in that boat.”
Dr. Curtis said many clients were
calling in this week to seek information.
But they were calm and mostly looking
for opportunities. “There was not the
panic that we heard in their voices in
2008,” he said.

Deborah Midanek, a turnaround
specialist and former mortgage specialist
who has large investments, said she
largely gave up on stocks after 2008. She
didn’t lose much in the crisis, thanks to
her bets on commodities. But she said it
was a defining moment for her and many
of her wealthy friends. She now owns
farm land and real estate. More than 10%
of her portfolio is in cash, “which is huge
for me.”

“After 2008, I realized that I know
absolutely nothing about the equity
markets,” she said. “I think people like
me just said, ‘who cares about the stock
market, I’m going to invest in something
I understand.’”

She adds, however, that stock prices
fell so much on Monday that she couldn’t
resist buying shares. “I bought stock in
just one company. I sit on their board, so
I understand it.”

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