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Mutual Funds May Become New Force on Wall Street
Aired July 11, 2002 - 14:23 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Wall Street is no place for the squeamish, but nowadays, even many long-term, die-hard blue chippers are looking green around the gills. So, assuming you have got any assets left, what do you do with them?
CNN Financial Correspondent Peter Viles is live from New York to talk a little bit more about this. So Peter, have you taken your portfolio and made it into a dart board yet?
PETER VILES, CNN FINANCIAL CORRESPONDENT: I don't even open my monthly statements anymore, Kyra, it is just no fun, and I'm going to stay with my own little strategy, but I don't want to look at the statements, I don't want to add it up every month. There is no fun out there.
PHILLIPS: Yes, no kidding. Hey, every time it comes in the mail, I don't even open it up. I put it right into the file. I think, OK, tax time, I may whip this open. It all depends.
All right. You and I were talking about how angry everybody is getting. They are getting mad at the corporate crooks, and all these scandals. Yet you bring up a very good point. There was a danger zone taking place well beyond what's happening right now. Let's talk a little bit about that.
VILES: Well, there are a couple of big factors in the market right now. People are angry about the book cooking that we have learned, it was going on for years, at big companies. They want Washington to do something about it. Washington probably will do something about it, but that's only part of the problem. It is not the government's job to boost the stock market, or to send it higher, and the market was in the process of trying to find an appropriate level after an incredible, historic, once in a lifetime bubble, '97, '98,'99, into 2000. That doesn't happen in the stock market.
When it does, they have to take back the gains. If you bought Nasdaq stocks at Nasdaq 5,000, they're down at 1,300, 1,400, the Nasdaq is. That's not the government's fault, that is not necessarily the fault of crooks who were cooking the books. You spent too much money on those stocks. You could be angry about that, but you should be honest about it.
The government is not going to get your money back. What the government can do is make the market safe again, so investors trust the numbers, but they can't send the numbers higher -- Kyra.
PHILLIPS: So Washington is not a rescuer...
VILES: No.
PHILLIPS: ... because everybody is pointing the finger that way, it seems.
VILES: Right. Another point. We talk about restoring investor confidence, and that's what Washington is trying to do. They are going to have a big partisan fight over who really wants to do it, but that's what they want to do, and when they pass these measures, they will argue about who wanted them more, and who is to blame.
They want to restore investor confidence. They can't restore the market to past levels. That's only up to investors every day. And stocks -- this is hard to believe, but we should say it -- stocks, by historical standards, are still expensive. They ran so far in the '90s that they are at levels, relative to their earnings, that through the course of history, we would consider to be expensive. So we may get confidence back in the market, but we may find the market is still a little higher than it will settle at.
PHILLIPS: All right. We have got to talk about mutual funds...
VILES: Sure.
PHILLIPS: ... because the reason why they are so diversified, I mean, investors here can change corporate behavior and step up to the plate, right? Let's talk about that.
VILES: Sure. Sure. You and I go to a corporate meeting, and we stand up in the back, and we say you are paying the CEO too much. They are going to laugh at us. But these mutual fund investors do have the power to change corporate behavior. They own big blocks of stocks, and they can come in and tell the boards -- probably not in public -- they can say you're -- been spending too much on this CEO. You are throwing around too many stock options. You are focused too much on the short term. We want a longer term plan for this company.
Throughout this great run, '96, '97, '98, the mutual funds were not known for doing that. They did not throw their weight around, except to the degree that they bought and sold stocks. There's another thing they can do, they can work with management. They can work with boards to try to get these companies back in line with economic reality.
A lot of people believe we are going to start seeing that on Wall Street from the mutual funds. They're supposed to stick up for the small investors who put the money in the mutual funds, not just buy and sell stocks, but try to influence these companies to be better managed.
PHILLIPS: Peter Viles. Thanks, Peter.
VILES: Sure. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
