High Anxiety



Published On

June 9, 2014

Published In


MONDAY, AUGUST 15, 2011 ¬©2011 Dow Jones & Company. All Rights ReservedOnce Bit, Rich Shy From Risk of StocksBy Robert FrankWhen stock markets swooned in 2008,Alan Mantell lost about 15% on hisinvestments.Now, the multimillionaire real-estateinvestor and business consultant is moreinsulated from market quakes, afterputting more money into cash and privatebusinesses and less into U.S. stocks.”Today, my first principle of investing isdo no harm, don’t make major mistakes,”said Mr. Mantell, president of New York-based Mantell Advisory LLC. “It’s notabout chasing returns anymore. For me,it’s about real diversification and not beingso dependent on traditional equities.”After taking big risks and big lossesin 2008, wealthy investors have becomethe Cassandras of the financial world,hunkering down with cash, gold,farmland and other haven investments.Their “fear portfolios” largely protectedthem from last week’s market gyrations,when the Standard & Poor’s 500-stockindex spiked up and down more than fourpercent a day for four days straight.Yet they are also imposing a nationalprice. Recoveries are often led by theinvesting and risk-taking of the wealthy,and the rich have traditionally beenmore optimistic about the economy thaneveryday investors. Yet current surveysshow the rich are among the mostpessimistic about the economy. Ratherthan investing in stocks or companiesthat can create jobs, they are betting oncontinued volatility and slow growthby hoarding cash, gold and other safetyassets.”If the wealthy run into the proverbialbunker, then the economy will falter,”said Mark Zandi, chief economist atMoody’s Analytics, a division of Moody’sCorp. “A loss of faith in our economy canquickly become self-reinforcing and self-fulfilling.”Not all the rich are playing it safe, ofcourse. Spectrem Group, the Chicago-based research firm, found that a third ofmillionaire investors planned to add totheir stock holdings in July, just before the markets faltered. Bel Air InvestmentAdvisors in Los Angeles, like manywealth managers, encouraged its clients toincrease their stockholdings to 40%from 35% earlierthis year, sayingthat “2011 will beanother year wherestocks outperformbonds.” And theystill could. Aspokesman for BelAir didn’t returncalls for comment.For now, however,the worriedwealthy look likethe smart money.Their cautionsignals a sweepingpsychologicalshift from themid-2000s, whenmany of the richtook a casino approach to rising markets.In 2008, households with $1 million ormore in investible assets lost an averageof 30% of their investments, and nearlyone-fifth of millionaires lost more than40%, according to Spectrem Group.Now, the wealthy are more focused onpreserving their fortunes than increasingthem. Michael Sonnefeldt, the founder ofTiger 21, a New York-based investmentclub for multimillionaires, said that hismembers now hold an average of about14% of their assets in cash, about doublethat of the mid-2000s. Tiger membershave an average of about 5% of theirinvestments in gold, although somemembers have more than 20%.”Our members battened down thehatches two or three years ago, andthey’re still battened,” Mr. Sonnefeldtsaid. “Right now, it’s easier to save abuck than make a buck. So our membershave taken a lot of risk off the table.”That may have cost them in the form oflower returns in 2009 and 2010. A survey by the Institute for Private Investors foundthat investors with investible assets of $30million or more earned an 11.3% return in 2010, compared with a 15% gain for theS&P 500 Index.Tommy Gallagher, a wealthy investor andformer Wall Street executive, said he waskicking himself last year as stocks ralliedand his safer investments earned weakreturns. He came close to putting moremoney into stocks, but “luckily avoided thetemptation.””It was making me crazy all year,” hesays. “Who wants to be the schmuck at theparty who’s not making any money whileeveryone else is making money.”Gregory Curtis, chairman and founderof Greycourt, a Pittsburgh-based wealth-management firm, said he and his clientsnever really believed in the recoverystory, because it relied on a large liquidityinjection by the Federal Reserve, ratherthan stronger economic fundamentals.”I’m sure there were some wealthyfamilies who were drinking the BernankeKool-aid and got burned,” he said. “But Idon’t know many families in that boat.”Dr. Curtis said many clients werecalling in this week to seek information.But they were calm and mostly lookingfor opportunities. “There was not thepanic that we heard in their voices in2008,” he said.Deborah Midanek, a turnaroundspecialist and former mortgage specialistwho has large investments, said shelargely gave up on stocks after 2008. She didn’t lose much in the crisis, thanks toher bets on commodities. But she said itwas a defining moment for her and manyof her wealthy friends. She now ownsfarm land and real estate. More than 10%of her portfolio is in cash, “which is hugefor me.””After 2008, I realized that I knowabsolutely nothing about the equitymarkets,” she said. “I think people like me just said, ‚Äòwho cares about the stockmarket, I’m going to invest in somethingI understand.'”She adds, however, that stock pricesfell so much on Monday that she couldn’tresist buying shares. “I bought stock injust one company. I sit on their board, soI understand it.”