Feeling adrift? Many money managers share your mood

Associated Press | 3/11/2009, 6:32 a.m.

He wants a simplified two-tier tax rate structure and lower capital gains taxes. If those steps were paired with the government’s bank bailouts and economic stimulus, “you’d see the Dow quickly re-inflate, in my view,” Travis said.

Ben Inker, director of asset allocation, GMO LLC: Inker helps his firm’s money managers make investment decisions and right now he calls stocks “compellingly cheap.” Since October, that’s where Boston-based GMO has been shifting more of the $86 billion it manages for institutional clients such as endowments, foundations and pension funds.

But these days, many of those holdings have eroded so much that clients are abandoning carefully laid plans.

“People had planned for certain eventualities: If the market goes down 20 percent, I will do this,” Inker said. “They didn’t plan for the market going down 50 percent.”

Institutional investors who may be overseeing money for thousands of people are typically more sophisticated than individual investors. But Inker says the groups’ current thinking doesn’t seem to differ much.

“The fact that stocks are now below their level of 12 years ago — and this is without taking inflation into account — definitely affects people,” he said. “Unfortunately, the effect it has is causing people to give up on stocks.”

But Inker also takes heart in the opportunities for long-term investors who stick to their plans.

“Stocks are cheaper than they have been in a long time,” he said. “And as bad as the economy is, it will not be bad forever.”

Kent Croft: Research shows the disappointment most investors feel from a market loss is deeper than the joy they experience from a comparably sized gain.

“It explains why the market goes down a lot faster than it comes back up,” Croft said.

He thinks investors are naturally optimists, even if many are now wracked by fear. At such times, they’re prone to latching onto any news that breaks the barrage of negative headlines.

So Croft is carefully watching for any indication that the economy may be turning a corner, or that the Obama administration’s rescue measures may be gaining traction. Of course, if he misses such signs, he might miss a rally.

“When you finally get some whiff of something suggesting that things may be less bad down the road, things can turn,” he said.

At such times, market watchers shouldn’t disregard seemingly remote factors that can nevertheless influence how willing investors are to buy or sell. So this March, Croft says it’s not beyond the realm of possibility that investors may take a cue from the arrival of spring.

“People are just sick and tired of being negative,” he says. “The days are getting longer, and that type of thing can affect mood.”

(Associated Press)