Top state securities regulator urges diversification, patience, homework
WASHINGTON (April 7, 2000) — Recent volatility in the stock market shouldn’t cause investors to question the benefits of a long-term commitment to a diversified financial portfolio, the nation’s top state securities regulator said today.
“Market gyrations like we’ve seen lately are more troublesome for traders than for investors,” said Bradley Skolnik, Indiana Securities Commissioner and president of the North American Securities Administrators Association.¹ “Day traders sweat the minute-to-minute moves of stocks. Investors take the long view and regularly put money into savings, mutual funds, 401(k) plans or a diversified portfolio of individual stocks.”
“Fortunately,” Skolnik added, “despite the media hype, most Americans are investors, not traders, and they’re unlikely to—and shouldn’t—question their long-term commitment to saving and investing because of some wild days on Wall Street.”
Skolnik noted the tremendous growth of stock ownership in recent years. “We’ve really become a nation of stock holders. Some 80 million Americans belong to this new ‘investor class.’” Half of American households are invested in the stock market today, versus less than 20% a generation ago.
In January, noting the sharp rise in the prices and popularity of technology stocks, state securities regulators cautioned investors about the need for diversification and careful research. Since late 1998 state regulators have been warning about the day-trading phenomenon. Most day traders lose money, according to studies by regulators in Massachusetts and Washington State. In addition, research by academics such as Terrance Odean of the University of California at Davis suggests that the more someone trades, the less well they do.
Skolnik noted that the Dow itself is Exhibit A in the case in favor of long-term investing. “The Dow has risen more than 10-fold since 1983 and more than tripled since 1991, and many individual stocks and mutual funds have done even better. How many day traders or momentum traders can say the same about their portfolios?”