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ROB CARRICK

Saturday, January 10, 2004

Rallying stock markets have helped investors get their groove back.

The first annual Globe Investor on-line survey has found a realistic level of optimism about the year ahead for stocks and a surprising level of equanimity about the ravages of a long bear market that lasted well into 2003.

Investors are hardly blissed out, though. Our poll found corrosive levels of skepticism and disillusionment with the investing establishment, notably mutual fund companies, corporations and even securities regulators.

Polls are frequently released by financial companies at this time of year to generate interest in their products and investing in general. These polls are focused on selling, whereas ours was designed to reflect the thinking of investors in these momentous times of corporate scandal and treacherously unpredictable stock markets.

We used the globeinvestor.com website (http://www.globeinvestor.com) to conduct our poll. Visitors to the site from Dec. 8-15 were presented with 24 questions about the markets and general investing matters, with a special

focus on the fund industry. A total of 2,195 people were kind enough to participate, and we thank them.

Asked what they saw the major stock indexes doing in 2004, 73 per cent of respondents saw a modest rise while another 9 per cent saw a sharp increase. Just 9 per cent thought the markets would fall either a lot or a little.

You'd have to say that investors have their heads screwed on straight here. If you canvassed professional market watchers about the year ahead, you'd probably come up with similar numbers.

How committed are investors to stocks? To get an idea, we asked what interest rate it would take on a five-year guaranteed investment certificate to cause a switch out of equities. For reference, current posted rates range from 3 to 4.25 per cent.

Just 8 per cent said a rise to between 5 and 6 per cent would pull them away from stocks and other investment products. This is interesting because a rise to this level from current rates would be substantial.

Another 28 per cent said it would take 6 to 7 per cent to sway them, while 35 per cent said 8 to 9 per cent and 29 per cent said they'd require 10 per cent or more.

We were also curious whether the three-year bear market affected the willingness of people to invest in stocks, either directly or through equity funds.

Only 24 per cent said they have cut back on their stock holdings, while a tiny 3 per cent said they no longer invest in stocks. Twenty-nine per cent said they had increased their equity holdings, while 45 per cent made no change.

The bear market was so severe that most major stock indexes are still lower than they were three years ago, even after the surge of 2003. Even so, the Globe Investor poll indicates that many investors were largely unfazed by the experience.

Just under two-thirds of respondents agreed that the bear market was a tough but worthwhile learning experience that they will grow from, while another 23 per cent agreed that it was not a major event.

Just 13 per cent said the slump was a harrowing experience that permanently undermined their confidence in the markets.

As for the bear market's impact on investment portfolios, only 20 per cent described the damage as severe. Another 54 per cent said they were hurt somewhat, while 8 per cent said they were untouched.

A few people even prospered during the bear market -- 14 per cent of poll participants said they made some money, while 4 per cent said they made a lot.

The people who participated in the poll were visitors to an investing Web site, so they obviously have some degree of involvement in financial matters. To get a more precise picture, we asked respondents about their investing background.

A tick over half said their investing knowledge was reasonably strong, while 14 per cent described themselves as sophisticated. One-third said they have a moderate level of knowledge, while just over 3 per cent said they knew nothing or next to nothing. As well, 87 per cent indicated they had been investing for five or more years. Just 1 per cent had taken up investing in the past year.

Turning to some of the more contentious issues, a strong majority of poll participants said the U.S. mutual fund scandals have negatively affected their attitudes toward fund companies, and many also said they would put less money into funds.

Next on the agenda was the outbreak of corporate fraud and unethical behaviour by corporate executives over the past couple of years. Two-thirds of poll participants said they were somewhat disillusioned by these events, while 10 per cent said they were soured to the point where they would curb their investments in stocks and equity funds, and 23 per cent said there was no impact.

Securities regulators have stepped up their efforts to combat these problems lately, especially in the United States. The Globe Investor poll suggests rank and file investors aren't all that impressed.

Just 5 per cent said they had a strong level of confidence that regulators could protect their investments from fraud and unethical practices by company officials and investment professionals, while another 40 per cent said they had a moderate level of confidence.

The kicker -- 55 per cent said they had a weak level of confidence, or no confidence at all.

Investors were quite a bit more charitable on the subject of stock analysts employed at major brokerage houses.

Research by analysts has been maligned because of potential conflicts that arise when their firms try to generate investment-banking business from the same companies being analyzed. Brokerages have been taking steps to limit conflicts, and investors seem to be buying in to some degree.

In the poll, just 15 per cent of respondents said analyst research was tainted by conflicts, while 55 per cent agreed that analyst research is somewhat useful, if not always reliable, and 5 per cent said it was extremely useful.

Just over half the people who participated in the poll invest on their own, while 18 per cent said they used a financial adviser and 31 per said they both have an adviser and do some solo investing.

There was some good news in the poll for the advisers and on-line brokers who serve these people. A total of 41 per cent described the service they received as excellent or good, while 26 per cent felt they received okay service. Just 3 per cent reported very poor service.

An encouraging sign for the entire investing business is the resilient spirit showed by the investors who participated in the poll. Not only did they maintain a stiff upper lip on the face of the bear market, but they also suggested they're as interested as ever in investing.

Just 10 per cent said they were less interested in investing than they were at the market peak in 1999, while 51 per cent said they're as interested as ever.

If that interest translates into dollars, maybe the investment industry will get its groove back, too, in 2004.

For the complete survey results, click here.

1. IN 2004, DO YOU SEE THE MAJOR STOCK INDEXES...

Rising sharply?: 9%

Rising modestly?: 73%

Little changed?: 9%

Falling modestly?: 5%

Falling sharply?: 4%

2. HAS THE BEAR MARKET AFFECTED YOUR WILLINGNESS TO INVEST IN STOCKS, EITHER DIRECTLY OR THROUGH MUTUAL FUNDS?

I no longer invest in stocks: 3%

I have cut back on my equity investments: 24%

It hasn't changed my investing at all: 45%

I have increased my equity investments: 29%

3. ARE YOU...

Fully invested right now?: 38%

Holding some cash, but looking to invest it soon?: 40%

Holding some cash, but not looking to invest it?: 15%

Planning to keep large amounts of cash on the sidelines indefinitely?: 7%

4. WHAT RATE WOULD IT TAKE ON A FIVE-YEAR GIC TO PULL YOU AWAY FROM STOCKS OR OTHER INVESTMENT PRODUCTS?

5-6%: 8%

6-7%: 28%

8-9%: 35%

10% OR MORE: 29%

5. HOW WAS YOUR PORTFOLIO AFFECTED BY THE BEAR MARKET?

Hurt severely: 20%

Hurt somewhat: 54%

Not hurt at all: 8%

I made some money: 14$

I made a lot of money: 4%

6. I FEEL THE BEAR MARKET WAS...

A tough but worthwhile learning experience that I will grow form: 64%

A harrowing experience that permanently undermined by confidence in the markets: 13%

Not a major event: 23%

Complete survey results

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