Investors unfazed by corporate scandals

Alicia Robinson

Though corporate lawsuits and scandals have been in national news and

some even have come home to roost, local investment experts said that

hasn’t spooked investors, who remain cautiously bullish about the

economy.

While nothing on the scale of Enron has come to light lately,

Newport Beach-based Pacific Investment Management Co. made news in

February when the New Jersey attorney general alleged that the

company allowed improper trades that defrauded investors, and earlier

this month U.S. attorneys charged Corona del Mar accountant Richard

Glenn Dunham with involvement in an investment scheme that took more

than $45 million from investors.

But local investors haven’t turned up their noses at the whiff of

financial impropriety in their own backyards, investment advisors

said.

“Corporate scandals are in my opinion a total nonevent,” said Chip

Hanlon, domestic strategist for Newport Beach-based Euro Pacific

Capital. “No one’s paying any attention.”

Major market indexes are currently up compared with the same time

a year ago, but they have showed little movement since the end of

2003. The Dow Jones industrial average sat at 10,295 on Thursday,

which is 25% above its level of 8,194 on March 18, 2003, but down

about 130 points from where it closed last year. Similarly, the

Nasdaq Composite was up more than 40% Thursday against the same day

in 2003 but has dropped nearly 150 points since Jan. 1.

While fraud allegations have caused mass exodus of investors at

some mutual fund companies, successful damage control has largely

spared Pimco from losses, said Tom Lydon, president of Newport

Beach’s Global Trends Investments.

“I would say in general, the average investor is not heading for

the hills,” he said. “Mutual funds are still a great choice for the

average investor.”

Because people may not see a drop in the value of their mutual

fund shares, they don’t see reported cases of mutual fund fraud as

something that affects them, said Peggine Tellez, a Costa Mesa

investment representative for Edward Jones, the nation’s

fifth-largest investment firm.

If investors are cautious right now, it may be because of the

effects catastrophic events such as the recent train bombings in

Spain are having on world markets, Tellez said.

After a yearlong rally in 2003, the stock market is now in

somewhat of a holding pattern, moving a little downward since

January, UC Irvine business professor Peter Navarro said.

“Basically, the problem we’re witnessing is the economy is a

little softer than we thought,” he said. “Jobs aren’t being created

as quickly as we’d hoped, and consumer confidence is falling because

of that.”

Investors are encouraged by the market’s performance over the last

year, but they are becoming more tentative about their portfolios and

taking a more active role in investment decisions, Lydon said.

“If and when the market does fully recover, what I’m finding is

the average investor on the street is going to have some kind of exit

strategy in place,” he said.

Hanlon said people seem to believe the economy has recovered, but

that’s a mistake because that recovery is built on artificially low

interest rates and people going deeper into debt.

“Interest rates can’t go effectively any lower, so we’ve reached

the end of the line,” he said.

Tellez said her clients have been more curious about their

investments, and that can only be good for them.

“I still hope that investors continue to be vigilant and continue

to ask questions and learn all they can so they’ll not fall prey to

people in the industry who don’t have their best interest in mind,”

she said.

* ALICIA ROBINSON covers business, politics and the environment.

She may be reached at (949) 764-4330 or by e-mail at

[email protected].