Educated investors have maintained their confidence in the stock market despite the recent WorldCom scandal, according to the National Association of Online Investors, an investor education group based in Washington, D.C.
“Recent corporate blowups at Enron, Tyco, Adelphia, and most recently WorldCom and Xerox, have sensitized investors to look for certain types of red flags in corporate behavior,” says NAOI president Leland Hevner, “But educated investors are not changing the stock holding percentages in their portfolios in response.”
Hevner says informed investors aren’t afraid of the headlines. “Individuals who have taken the initiative to learn how to invest have more confidence in the market and in themselves. They feel they have the knowledge and tools to steer clear of potential corporate disasters. In other words, they are not helpless.”
In response to the general question of what signs to look for as a result of recent corporate meltdowns, NAOI members mentioned such negative signals as
- CEO or other top level executive resigning;
- Significant insider selling;
- Complicated business model which is not easily understood from reading financial filings; and
- No current earnings — stock price justified by projected earnings.
“The confidence of our members is certainly eroding in a specific segment of the market,” concludes Hevner, “but they have not stopped investing in stocks. Rather they have shifted their attention to small and medium cap stocks where CEO’s don’t make millions of dollars in compensation and where real earnings are required to survive.”