Lingering among bulls cost him early retirement

Lingering among bulls cost him early retirement
CHAD TERHUNE

TAMPA, Fla: Early last year, the stock market was so strong that Michael Schwartz went into semiretirement. With his portfolio’s value soaring to roughly $2 million, the health-care consultant, now 50 years old, quit taking on new clients. His wife, Janine scaled back her own workload as a speech pathologist.

The Schwartzes began planning to liquidate their stocks and live off the six-figure-a-year interest they expected to earn on the proceeds. The couple looked forward to enjoying the spacious home they had built here on a canal near the Gulf of Mexico and to traveling the globe. They pictured their sons, Austin, 11, and Benjamin, 13, attending Ivy League schools.

Not anymore. Their portfolio, heavily weighted with shares of hard-hit telecommunications companies, has lost more than half its value in the past year. Now they are one of countless families scaling back their dreams with the demise of the bull market. ‘‘I’m one of the stupid people who didn’t sell,’’ says Schwartz. ‘‘Unfortunately, I was a pig.’’

His bubble began to burst last summer, as the Schwartz family celebrated its good fortune with a month-long vacation in British Columbia. Schwartz planned to sell his 16,000 shares in WorldCom Inc., one of his largest holdings, once the stock hit $50. His family had complained about him checking his stocks on previous trips. So Schwartz let a week pass before calling his Charles Schwab account representative from the resort town of Penticton.

Schwartz, who says he bought his WorldCom shares at between roughly $15 and $35, was ecstatic to learn that WorldCom had reached $46.50 a share. Almost there, he thought. Then the account rep told him that was down nearly $3 from the previous Friday, when WorldCom’s merger with Sprint Corp. was called off. By the end of July, when Schwartz returned from vacation, WorldCom was trading at $36. Now the stock is at about half that price, and he still owns roughly 8,000 shares.

Schwartz’s wife and sons had urged him to cash out during the first half of 2000. But like many others who have lost thousands or even millions of dollars in recent months, he never expected stock prices to drop so sharply so suddenly. ‘‘I wanted to get back to even,’’ he says. ‘‘Now I’m going back to being my father and working until I’m 70.’’

Schwartz wasn’t among the many investors who got burned by dot-coms or initial public offerings. He generally made a point of shunning stocks whose price-to-earnings ratios exceeded 30. Instead, he focused on established companies, such as Unisys Corp., whose shares he accumulated over several years at prices ranging from $5 to $30. But that strategy didn’t protect him from steep losses. Unisys shares, for example, have fallen to less than $15 from $32.50 last March.

‘‘More than anything I have the sense of letting my family down,’’ Schwartz says. ‘‘I had hoped for Ivy League for my kids. Will I have to tell them, ‘No’?’’He blames himself, for the most part, for not diversifying his investments more or for believing too readily in stock analysts’ lofty price targets. But he says not everything was his fault. Federal Reserve Chairman Alan Greenspan, he says, ‘‘screwed us by raising interest rates’’.

The Schwartzes aren’t headed for the poorhouse, but they have tightened their belts. Schwartz has canceled plans for another Canadian vacation. Last month, the family skipped their annual spring-break visit to the Orlando theme parks.

They are also dining out less. If the market keeps slipping, Schwartz worries about having to trade down from his $500,000 house in a gated subdivision.After turning down jobs for months, Schwartz is finding his health-care consulting business slow to return. So the family is pinning its hopes for a financial turnaround in part on marketing exercise tapes for children. Schwartz got the idea about two years ago, when her son Austin was about 20 pounds overweight. A dietician recommended exercise, but no gym in their area would accept young children. And Austin couldn’t keep up with the complex routines on made-for-adults tapes by fitness gurus such as Richard Simmons and Jane Fonda.

The family spent roughly $100,000 producing two exercise videos called ‘‘Movin’ & Groovin’: Fitness for Kids.’’ The tapes worked for Austin, who exercises at least three times a week and has shed about 15 pounds. The Schwartzes have sold nearly 1,000 of the tapes at $19.95 apiece, primarily through their Web site. But their hopes of producing an infomercial to promote the tapes at an estimated cost of $500,000 have evaporated along with their stock-market gains.

Schwartz figures selling a total of about 300,000 tapes could make up for his investment losses. Without an infomercial, he is hoping to find a kid-friendly corporate ‘‘white knight’’ to sponsor the tapes. But his wife doesn’t like the notion of making money off flabby kids. In fact, she recently quit working on the project for a few weeks in protest. ‘‘It was hard for me to even think of the tape as income or a job,’’ she says.

These days, hockey helps Schwartz, a former college goalie, forget his investment troubles. Two weeks ago, he took his sons and nine other boy to see the Tampa Bay Lightning play. Schwartz briefly considered canceling the outing to save money, but he was able to get a hold of several free tickets.

Despite their losses, the Schwartz family’s life still revolves around the market. Every hour can bring a new emotional high or low. On a Friday morning two weeks ago, Schwartz was thrilled to see the Dow Jones Industrial Average up 93 points in early trading. An hour later, most of those gains had vanished, along with his upbeat mood. ‘‘We’re having another Friday fall-apart,’’ Schwartz groused. Later the same day, Schwartz’s spirits improved when a hospital chief executive called to give him a consulting job worth as much as $20,000. Schwartz, sitting in a leather chair in his home office, pumped his fists in the air. ‘‘Hip, hip, hooray,’’ he cheered.

Austin and Benjamin have noticed their father is discouraged. Now, when they give him periodic updates on swings in the stock market, they aren’t always completely truthful. ‘‘Even if the market is bad, I tell him it’s good,’’ says Austin. Both boys play stock-trading games on the Internet, competing for video games and other prizes. And their mock portfolios are ailing because they include many of their father’s holdings.

Flopped on the family’s blue sofa recently, Austin recounts his own make-believe market misery. Like his dad, he saw WorldCom and Winstar wilt. He says he lost on World Wrestling Federation Entertainment Inc. and adds that Flextronics International Ltd. ‘‘is killing me’’.

Benjamin’s fictional $100,000 portfolio had dropped to about $76,000 as of two weeks ago, good for the bottom 1 per cent in his Internet stock-picking game. Seated across from his father in the home office, Benjamin furiously punches several stock trades into the computer after the Internet site tells him he bought too heavily on margin that is, with borrowed money. His father lectures him on the nuances of margin trades. ‘‘My sons are learning this isn’t an easy game,’’ Schwartz says. ‘‘I wish they hadn’t learned it from me.’’

-- (From The Wall Street Journal)