Misery may love company, but this was ridiculous. More than a million IBM stockholders last week took a nightmare ride on a stock they had long trusted. IBM had been sliding all year, recently hitting 10-year lows. But after the company announced Tuesday that it would, among other things, slash another 25,000 jobs, the stock took a historic dive. In 48 hours, it lost 11 points, or almost 18 percent of its value, closing Wednesday at 517/s. On Friday, it hit another new low. Big Board officials camped out on the exchange floor to prevent chaos, and brokers fielded frantic calls from investors in various stages of disbelief and agony. “They’re screaming and hollering,” said Carol Komskis of York Securities. “They’re saying, ‘Things like this just don’t happen in America’.” Even worse news could come: IBM warned that it may have to cut its dividend.
Stock prices that rise and fall are nothing new; that’s what makes a market. But Big Blue had always epitomized the blue-chip stock that you could count on to send the kids to college or help you retire in style. Some investors may be in blissful ignorance; pension funds across the country are heavily invested in IBM. (The New York state employee pension funds alone hold 3.6 million shares.) But the charm of stocks such as IBM, General Motors and Westinghouse was that you could feel secure in buying them even if you didn’t know “earnings” from your elbow. Such stock made generations of Americans faithful capitalists. “This was the kind of stock that created wealth for a lot of people in this country,” says Jonathan Pond, a Boston-based financial counselor and author.
He likes to tell the story of a Pittsburgh broker who was called by a retired steelworker in the mid-1980s. The man had left $40,000 worth of blue-chip-stock certificates in his safe-deposit box when his father died, more than 20 years earlier. He was embarrassed, he said, that he’d never done anything with them. Could the broker pick up the pieces? He sure could. Those neglected pieces of paper had quietly turned into a half-million-dollar portfolio.
That’s not going to happen anymore, says Pond. “The old standby stocks are turning into today’s and tomorrow’s dogs.” People like John Leatherbee are the sad counterparts of the Pittsburgh retiree. Leatherbee, 56, of Summit, N.J., has held IBM stock all his life, following a tradition set when his grandfather, a farmer, bought IBM in the 1930s. One portfolio he and his brother control was 60 percent invested in IBM. As IBM dropped this year, the Leatherbees wondered and worried. But until two weeks ago, their Dean Witter broker still had IBM marked “buy.” (Many analysts, as The Wall Street Journal put it, were “red-faced” last week.) The Leatherbees figured they’d “ride it out.” They’ll meet with the broker this week to assess the damage.
IBM workers were hit especially hard by the crash. IBM employees and directors hold almost 5 percent of the stock, or 27.9 million shares, according to IBM’s latest available numbers. Like many companies, IBM encourages employees to buy its own stock by selling it to them at a discount. It’s wise enough to buy such stock in many cases, but many employees fail to diversify later. “It’s nice to be patriotic to your company,” says James A. Miller, senior portfolio manager at Bartlett & Co. in Cincinnati. “But it’s double jeopardy” for employees who could end up with a slashed retirement account and a pink slip.
No one can predict what IBM stock will do next, although certain analysts say it’s time to buy. But after last week, some people don’t even want to think about it anymore. “The stock market’s just too much for a small investor,” said Cunnion, who traded stock for 10 years. “They’ve taken away any incentive for doing anything on your own.” Now he’s thinking of mutual funds. Enough, says Cunnion. Let someone else lie awake nights.
