Students Hang Tight as Markets Take a Dive

Making money in the stock market the past few years has often seemed easier than a gut Core class for many Harvard investors. But the curve just rose a little higher last Friday.

Michael T. Coscetta '03 was enjoying a weekend in upstate New York away from the work and pressures of Harvard when he realized that he did have something to worry about.

"I was playing softball," he says. "My friend called me inside, and he says, 'Mike, you have to take a look at this.' I thought he was going to show me a picture of a naked woman."

"He points to the TV, and I see the stocks flying by. I punched him, started swinging, threw him onto the bed and started yelling at him for a while. He brought me in from my softball game to show me [I was] losing thousands of dollars," he says.

During the last two weeks, the stock market has made investors across the country more than a little queasy. The Dow Jones Industrial Average plunged 618 points last Friday, its biggest-ever drop. The NASDAQ, which includes many of the highest-flying technology firms, lost a quarter of its value last week.

While both indexes have risen healthily since Friday, the wild ride has left some Harvard investors with big losses.

Coscetta says he was not hit especially badly because many of the stocks he owned escaped the brunt of the fall. But his riskiest stocks went down--a lot.

His losses on Friday were about $9,000, just under 10 percent of his portfolio, he says.

This week, his stocks have recovered, negating the loss on Friday. But he still has not made up for the correction that has been going on all week.

"I should have sold on Monday of the week before," Coscetta says.

But many student investors say they've learned to take the risks in stride.

"This is just a small bump in the road," says Jeffrey W. Helfrich '03.

Watching for Disaster

For most students who have serious investment portfolios, Friday's plunge was frightening but not exactly unexpected.

"I cannot say I was shocked, more like surprised," wrote Simon O. Holmes '03 in an e-mail message. "Nobody who knows the market could have honestly believed that the valuations some of these companies had were justified, or would last for the long term."

Holmes has been an investor for four years and has run his own portfolio since his junior year in high school.

Between April 10 and 14, Holmes lost about 30 percent of his portfolio. On Friday alone, he was down 13 percent. But he says that his stocks have gone up 20 percent since then.

Helfrich also lost a bundle in the recent downturn--perhaps 75 percent of the money he had made on paper. But because he is involved in volatile stocks, he says, the decline was not a complete surprise.

But because Helfrich was at a track meet, he did not learn of the market's drop until he returned on Saturday.

"Usually I watch it on a daily basis and freak out about the whole thing," Helfrich says. "I didn't have a chance to check it before the market had closed, so I wasn't quite as apprehensive as I would have normally been."

He is philosophical about the change in his fortunes.

"I'm at a point in my life where the money I put in there is money I feel I can lose," Helfrich says. "I'm really scared for the people who have their life savings invested in stocks. I really live by the philosophy that you shouldn't put money in the stock market that you can't afford to lose."

So has he learned anything? "I should have had set limits and just sold out then no matter what was going on," he says. "In the future, that is what I will probably do."

Like Helfrich, Coscetta, a licensed stockbroker, says he expected the market to drop on Friday as it had the day before, but he had no idea that it would drop as much as it did.

Coscetta has a theory behind the market's drop.

"At the beginning of the correction, it started out as bargain hunting because the NASDAQ stocks were extremely expensive as compared to the Dow stocks and the Dow-related stocks. All the tech stocks were very expensive," he says.

During the past year, many technology stocks have boomed even though their companies have yet to see a profit.

Investors lost confidence in the technology sector, Coscetta says, when Goldman Sachs, an investment bank with very large holdings, announced two weeks ago that it was removing a portion of its institutional investments from NASDAQ stocks and moving them back to Dow stocks. Goldman Sachs has one of the biggest proportions of institutional investments in the market, Coscetta says.

He says when the company indicated it did not have confidence in the market, other investors started to follow in removing their investments from the NASDAQ.

Coscetta adds that he thinks the media is partially to blame.

"The media has blown out of proportion every single jump, dive, boost, explosion in the stock market," he says. "It's the number one story, not Elian, not the Philippines, not Clinton. A small drop becomes next day's tank because of the media."

Hanging On Tight

Most experienced student investors say they plan to ride out the volatility of recent weeks.

"No market correction should change anyone's investment style," Coscetta says. "It's something you should prepare for and, if you can, dodge."

He says he still believes day trading is a good way to make a profit but emphasizes traders must be prepared to take hits. And he says long-term investing is also still profitable.

Like Coscetta, other Harvard students see the stock market's plunge as simply a small correction.

Helfrich thinks there will be less "irrational exuberance," as Federal Reserve Chairman Alan Greenspan put it, and that the market will return to more "fundamental-based investing."

"In the last couple of years, all the price to earnings ratios have been extremely high. That philosophy just wasn't working," Helfrich says.

Both Helfrich and Coscetta have been investing for over a year, and past experience has prepared them for the pitfalls along the way. But for newer investors such as M. Patrick O'Donnell '03, last Friday's plunge has made them more aware of the potential dangers of investing.

"It changes my view of the market," O'Donnell says. "We've had such a growth period. Now that I'm seeing the other side of it, it makes me more cautious."

Holmes agrees the decline will be a dose of reality. But he does not plan to make major changes.

"[It did] bring me back to reality and remind me that months where I would double the value of my portfolio are going to be few and far between," he says.

He says he still thinks the stock market is a good place to put money. And he emphasizes that just as much money can be made when the market is going down as can be made when it is going up.

That is a lesson Eugene Krupitsky '02 already knows. He often buys put and call options--the right to sell and buy stocks at particular prices--to make the most of market swings.

"I bought puts the day before the crash began and sold them," Krupitsky says. "I was disappointed that I didn't hold those."

He says he looks for huge increases in the market and then prepares for drops.

"It wasn't a surprise--that's why I bought puts," Krupitsky says. "When you play as volatile a market as now, you realize that you're going to have drops like this and run ups like this--100- and 200-point swings are just part of the game."

Holmes echoes that belief.

"What we are going to see in the future is more reality and stability in the market," he says. "This means no more no tech sector IPOs that triple on the first day."

A dose of cold water to the high tech world might have disastrous implications for the Harvard seniors flocking to Internet start-up companies.

But according to William Wright-Swadel, director of the Office of Career Services, few students have changed their career plans just because of last Friday's market fall.

"I am sure that the recent downturn in the market has affected how some students are thinking about their plans," he wrote in an e-mail message. "However, we have seen no immediate evidence that individual students have altered specific plans they have made or anticipate making."

But that doesn't mean seniors have ignored the changes.

"I suspect that the career conversations with peers, parents and potential employers will have a little more content around 'security' issues than they have had until now," he adds.