Small Investors Sit Out Latest Market Selloff

NEW YORK —  When the stock market took another dive Monday, small investors were apparently watching from the sidelines--if they were paying any attention at all. The 76.93-point drop in the Dow Jones industrial average, the eighth-biggest in history, resulted largely from selling by large institutions, Wall Street observers said.

“Many small investors were not even aware that the market was down,” said Jennifer Gavin, a spokeswoman for Boston-based Fidelity Investments, which manages 123 mutual funds. “We were not seeing redemptions.” In fact, the number of telephone calls that Fidelity received Monday for stock market information--as well as for redemptions, purchases and shifting assets between mutual funds--was lower than the firm had projected. Fidelity averages 110,000 calls a day.

Others agreed that the institutions were calling the shots Monday.

“I don’t see retail clients doing much at all in this market,” said Trudy Latimer, a market strategist at the New York investment firm Josephthal & Co. “These are very large pieces we’re seeing traded here.”

The New York Stock Exchange reported at the end of the trading day that 3,866 large blocks, or trades of 10,000 shares or more, changed hands Monday. That compares to 1,538 on Friday--the day after Thanksgiving, which is always slow--and 2,798 last Wednesday.

Few Calls Reported

“Seventy percent of the trading on the Big Board is institutional,” said Hildegarde Zagorski, an analyst with Prudential-Bache Securities in New York. “I don’t see why there should have been any change in that on Monday. I didn’t see the small investor running in here.”

Some analysts said small investors generally move into the market a day or two after there has been a big downturn on Wall Street.

T. Rowe Price Associates, a mutual fund manager based in Baltimore, also had fewer calls than normal for a Monday after a holiday.

“Small investors usually react late,” said spokesman Steven E. Norwitz. “There is usually a delayed reaction. They usually don’t hear about a drop for a day or two.”

Norwitz said that on Monday as many small investors switched into equity funds as pulled out of them.

“This was primarily more of the institutional panic we first noticed about six weeks ago. Heavy selling and a total absence of buying is pretty much an institutional game. It is the professionals who do the big damage and prepare the menu for the small guy,” said Robert H. Stovall, who heads Stovall-21st Advisers, a New York money management company. “Mr. and Mrs. North America tend to be small buyers on days following days like Monday.”

The main reason small investors buy after a major drop, Stovall said, is to get higher yields on their investments.

“If they can get a 5.5% yield on Exxon, they think that is pretty good,” Stovall added. Small investors are generally buying high-yielding blue chip stocks, he says.

But at the same time, Stovall said, many small investors also missed out on the five-year bull market.

“The small people were primarily bond buyers and certificate of deposit buyers during the bull market,” he said. “They did not believe in it. They thought it was an East Coast-West Coast game that did not apply to them, because 35 of 50 states were in economic recession. Now mid-America is a bit more prosperous, and these small people are trading bonds and CDs for stocks.”

Not everybody agrees that the little guy didn’t participate in Monday’s drop, however.

Michael Metz, a vice president at Oppenheimer & Co., a New York brokerage firm, said small investors were dumping their stocks Monday. “Some people are throwing in the towel,” he said. “They thought they had some bargains in October. Now they have small losses and are selling.”

THE DOW’S BIGGEST DROPSOct. 19, 1987: 508.00 points

Oct. 26, 1987: 156.83 points

Oct. 16, 1987: 108.35 points

Oct. 14, 1987: 95.46 points

Oct. 6, 1987: 91.55 points

Sept. 11, 1986: 86.61 points

Oct. 22, 1987: 77.42 points

Nov. 30, 1987: 76.93 points

July 7, 1986: 61.87 points

Nov. 9, 1987: 58.85 points