Shrink Rap: Baby, It's Cold Outside

Given the sharp losses that tech-laden growth funds have sustained over the last year and three-quarters (with the Nasdaq Composite down over 30% for the third quarter and over 39% for the year), it's no suprise to learn that many money managers are grappling with the fallout. I'd like to share the thoughts of two professional money managers who wrote into the Shrink Rap forum.

Deer in the Headlights

Dr. Hendlin, I have discretion over my accounts. My portfolios are well diversified, and are beating the market over any time period. I sold substantial amounts of technology stocks in August of 2000 for huge gains. However, I have ridden the remainder of my technology positions to where they are today. I have known since mid-February that I should lighten up further, but have mostly acted like a deer in the headlights. This is due entirely to what I fear to be the client's reaction to the sales.

No matter how poorly the stocks do in the short term, if I take the loss and never buy the same stock back, if it goes appreciably higher (which I believe probable), they will never forgive it. Therefore, my question is really about dealing with the psychology of the client.

From Hero to Haunted

Dr. Hendlin, I manage money for numerous clients -- including friends and relatives -- and have been in the business for 20 years. I was a hero two years ago, as my clients were far ahead of schedule for meeting their retirement goals. Now all that $$ is gone and then some. How do I respond to these friends, who like most investors, are feeling unjustly singled out, who miss the feelings that accompanied those higher account balances, and are plain scared. Their money would now have been better in a passport account the last three years. ...