Stock Market and Investment Losses and Investing and Investment Brokers and Investment Advisers and Banking & Finance

Seasoned stock pros size up slump

February 23, 2009

Media pundits regularly call the current economic crisis the worst since the Great Depression. One of the few Indianapolis financial experts who's actually qualified to make such a comparison is Donald C. "Danny" Danielson, the 89-year-old vice chairman of City Securities Corp.

For Danielson, who still comes to work every business day, the Great Depression isn't a paragraph in a history book, but a living (and very unpleasant) memory.

"I grew up in South Dakota, and I'll guarantee that the unemployment level there was probably close to 35 percent," Danielson recalled. "All kinds of people were out of work. They were struggling to make enough money just to eat. All kinds of transients seemed to invade the neighborhoods, looking for food."

Danielson (along with a handful of other financial professionals whose careers predate the computer age, the space age and rampant deficit spending) has truly seen it all. And like other old hands, such as 76-year-old Gene Tanner, vice chairman of NatCity Investments, and 72-year-old L.H. Bayley, chairman and CEO of David A. Noyes & Co., he's willing to apply those life lessons to the current economic situation. Danielson, for one, has proven particularly adept at sizing up career opportunities. An Indiana University graduate and a trustee at the school for 21 years, he started along his current path in 1945 after leaving the U.S. Navy.

He got the chance to either go into business or pursue his dream of playing professional baseball. He was signed by the Brooklyn Dodgers, but discovered that his competition for the second base position was none other than Jackie Robinson.

"I had a chance to go to IU to work as assistant to the alumni secretary, or to go with the Dodgers," he recalled. "Thank God I used my head instead of my heart, because I always wanted to be a Major League baseball player."

Instead, he went to IU, then spent 28 years in manufacturing, followed by 33 years (and counting) at City Securities.

It's no surprise that, for someone who has risen from nothing to something on his own, he's concerned over the current mania for "rescuing" failed businesses with government funds.

"When I think of the number of failures that have taken place in the banking industry, in the investment banking industry, in manufacturing, I am deeply troubled that the way you take care of a sick business is by bailing it out," he said. "The way you take care of a sick business is by reorganizing it in some fashion, and getting in leadership that can make it work. I think that's the way you resolve the problem we're in, and that is not what the government is doing."

Also to no surprise, Danielson is a great believer in training and expertise. It's the only way to ensure personal success. This is a bad time, he asserts, to be the fifth-best at what you do.

"You've got to be well-trained and well-educated in your field, willing to sacrifice the time to prepare and be ready," he said. "Some people talk a good game. They talk like they want to be well-trained and well-educated. But it takes a lot of energy and hard work, and when the rubber hits the road, they're not there."

Danielson goes so far as to call the current downturn, with its breathtaking job losses, a borderline depression. Not that he's all doom and gloom. It's hard to be, when you've seen it all before.

"I definitely think the experience of going through a difficult time is an advantage," he said. "Instead of being negative, you can be positive. We can find a way to get through this thing. That's why people like me can take time to talk to guys who are just starting their careers and going through this struggle. I've done a lot of that in the last few months."

That can-do thinking applies to investing as well.

"People have been hurt with their portfolios and lost substantially," he said. "But you don't lose until you sell. If they're invested in strong companies—and by strong I mean they have a continuation of good earnings with a small amount of debt—these companies are going to survive. And if they're public companies, their shareholder values are going to rise and come back."

Surprise, surprise

Gene Tanner at NatCity was caught off guard by the severity of the current crisis.

"I feel pretty dumb," he said. "Until about six or seven months ago, I refused to say it was different this time. But I think it has been." The numerous, unexpected body blows to the economy—major bank failures, market volatility, on and on and on—helped change his thinking. He believes the current problems could lead to some jarring "lifestyle changes," as he diplomatically calls them.

"I have real concerns about the collateral effects from this thing," Tanner said. "We're seeing a lot of companies that are quick to cut their dividends. ... Nokia came through with less-than-expected earnings and immediately cut their dividend. Well, that is going to have a collateral effect."

For now, he advises keeping a strong cash position until things sort themselves out, which might happen, he thinks, in a year or so. Or, maybe a little sooner. It all depends on when public attitudes change, and when the government stimulus programs start to gain traction.

"I want to be constructive, and I do think that the government is going to start throwing money—though perhaps that's too strong a word—at this thing, and I think some of that will work," Tanner said.

"I just don't know how fast. As we've heard from several quarters, this too shall pass, and it will. But you could get beaten up pretty badly while you're waiting for it to pass. I think having a good, sound cash position is quite important, because you don't know when this situation will turn."

Too much fearmongering

According to L.H. Bayley at David A. Noyes & Co., this downturn—just like all the others—survives at least partially on people's negative perceptions. Only this time that downbeat mood is being perpetuated by panic fostered (at least in part) by the 24-hour media.

"The world of investing is always about emotions," Bayley said. "That's more influential today because of the media. The media makes much more out of fear than they do of success, and give much more negative news than they do positive news. So emotions on the downside have more of a catalyst to extend themselves."

If you've got lots of nerve and a pile of cash, this might also be a good time to start shopping for well-run companies with depressed stock values. Just be highly selective. Because this thing isn't over yet. It will still take time to sort out the mess left behind by lax regulation that, in Bayley's view, allowed banks to mess around with the extremely iffy sorts of investments that led to the current downturn.

However, if the scale of the problems is unprecedented, so is the scale of government intervention. Bayley feels that intervention will help turn the tide.

"[The Federal Reserve] definitely negated what could have been a much more severe decline," he said. "We must remember that the Fed prints money. And they've made a major investment in this already, and I think they will make greater investments if necessary. They're going to continue to print money and put it into the system until it makes its turn."

Bayley plans to stick around for the turn of the tide, just as he has for every other turnaround since the 1950s. Last Aug. 5, he got to ring the closing bell at the New York Stock Exchange, because his 100-year-old company is the oldest NYSE member firm in the Midwest.

"That was a very nice thing to do," he recalled. "And by the way, the market went up 331 points that day."

Perhaps based on that enviable record, he's been invited back to ring the bell again.

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