For the 3.2 million Canadians who play the stock market, last week’s collapse of share prices was a gutwrenching reminder of what stockbrokers casually call the “downside.” Over the past six years retired Montreal executive Arthur Love has seen the value of his investment portfolio grow fourfold. But by the time trading ended last Thursday on stock exchanges in Canada and the United States, the stock portion of his holdings was worth only 80 per cent of its value one week earlier. In Toronto, the part-owner of a small food service company lost $20,000 when the value of shares that he purchased with borrowed money plummeted. And as the markets gyrated wildly, even professional traders were trapped. One Toronto brokerage executive, who had been planning to sell his shares to raise the down payment on a new house, lost $10,000 in two market sessions last week. “I was just a little too late,” he said. “I watched 50 per cent of the value of my shares vanish in two days.”
Exotic: Across the country, both veteran investors and newcomers to the stock market told similar tales of woe. It was a chilling setback after five years of prosperity in which the soaring stock market came to symbolize an unfettered optimism and a blind assumption that the economy was unshakably sound.
As the memory of the 1981-1982 recession faded, it seemed that many Canadians fell victim to a love affair with money. It found expression on television, where the glitterati of Dynasty and Dallas dominated ratings, and in publishing, where a new generation of glossy magazines documented the achievements and lifestyles of the richly famous.
In the country’s financial capitals, Jaguar sedans, Yves Saint Laurent wardrobes and Tudor mansions became the emblems of success.
But for some high achievers, the appetite for wealth overcame ethical considerations. The international investment community was stunned last November when securities investigators reLove:
vealed that one of Wall Street’s most successful brokers, Ivan Boesky, had made millions of dollars from illegal dealings. Boesky’s testimony allegedly led to further investigations in New York, Toronto and London.
Still, the energy of the soaring bull market proved beguiling—and ultimate-
ly, in many cases, devastating—for ordinary middle-income Canadians. The surging market has attracted about one million new Canadian investors since 1983. And over the past two years studies have found that Canadians playing the stock markets have become more daring as they increasingly opted to direct their own portfolios. By last week nearly one in five Canadian adults had money riding on the exchanges—the highest ratio ever. Major brokerage houses fuelled the trend by launching aggressive television advertising campaigns and an increasingly exotic array of investment options. And banks and other institutions were more than willing to offer daring investors loans to buy stock.
Bet: The managers of Canada’s major mutual funds also advertised their products widely, and their sales increased ninefold between 1981 and 1986. Investors like Montreal’s Love said they believed that mutual funds, which pick securities for consumers, were a safer bet for investors who are too busy to follow thousands of stocks that they knew little about. By the middle of this year the assets of Canadian mutual funds topped a record $21 billion. And 57 per cent of that amount was held in stocks—a number that increased as investors pumped an additional $50 million a day into the popular investment vehicles.
Greed: But the flood of new players over the past few months dismayed many market professionals. They were rushing in when, according to many experts, share values had already soared too high. Said Carl Beigie, chief economist at Toronto-based investment dealer Dominion Securities Inc.: “The vast majority of small folk, driven by the fear that they are going to miss the market, came too late and paid too much. Then they sell too late and receive too little.” And in Montreal, Thomas Burke, a z broker with Guardian Trustco - Inc., was blunt in his assessS ment of the clouded judgment gains of many new players. “New-
comers to the market were buying blind,” Burke said. “The greed factor was incredible.”
The stampede to the markets was at least in part an aftereffect of the 19811982 recession, one of the worst since the Great Depression of the 1930s. Pollster Ian McKinnon, president of Decima Research Ltd., said that Canadians became measurably more interested in money following the downturn at the beginning of the decade. That concern, he said, sharpened the media’s focus on commerce and financial success. Penny Williams, editor of the Toronto-based monthly Your Money, has watched her magazine’s circulation more than double to 80,000 copies since its first issue in 1985. Since the recession of the early 1980s, she said, people have become skeptical of putting their money in traditional institutions such as banks and have been increasingly willing to direct their own financial affairs.
Lavish: And as the high-flying stock markets spun off more and more wealth, some observers argued that the pursuit of money was shouldering aside the traditional conservative values that had made Canadians among the highest per capita savers in the world. The personal savings rate of 8.8 per cent in the second quarter of 1987 was at its lowest level since 1972 and is less than half the 17.8 per cent that consumers stashed away during the 1982 recession. Pierre Kitts, 29, of Montreal is typical of the new money-conscious generation. He launched a messenger service at age 18 and two years ago used the proceeds from its sale to purchase a Porsche and a holiday property in the Laurentians. Said Kitts: “Business is the drug of the ’80s.”
Indeed, the decade’s winners have revelled in the obviously expensive spoils of their success. Canadian sales of Jaguar’s $62,950 Vanden Plas model quintupled between 1983 and 1987, and business at such elegant clothing stores as Toronto’s Creeds Inc. and Vancouver’s Leone—where some patrons spend $25,000 to $50,000 a year on clothing—has been skyrocketing. And Carole Stevens, a bridal consultant with the Wedding Council of Ontario, said that the marriages of cou-
pies at every income level have become lavish affairs featuring “more bridesmaids, more expensive dresses and more money.”
Solid: But as markets soared upward, few Canadians earned more from it than the brokers, traders and investment dealers who took large commissions on the shares that they handled. Timothy Miller, president of investment dealer Walwyn Stodgell Cochran Murray Ltd., for one, earned more than $1 million a year as one of Toronto’s top stockbrokers. The job often kept him at his desk for 12 hours a day, but for Miller the effort
paid off. “It’s the unlimited upside,” he said. “There really is no restriction on how well you can do.” Indeed, Miller said that he was in such a solid position after the market’s steady growth years that he will be unaffected by its recent volatility.
Scandals: But in many cases the desire to get rich quick appeared to eclipse moral and ethical considerations. On Wall Street, Boesky and Dennis Levine, managing director of mergers with Drexel Burnham Lambert Inc., were found guilty of using inside information to make illegal stock transactions when a U.S. Securities Exchange Commission investigation exposed the scheme last year. Equity markets in Canada and Britain have been rocked by similar scandals—some apparently sparked by Boesky’s revelations. In Canada, the Ontario Securities Commission earlier this year announced that it was con-
ducting a wide-ranging inquiry into alleged insider trading. And last month in Montreal former Progressive Conservative party president Peter Blaikie was one of seven people accused by the Quebec Securities Commission of illegal stock trading. Blaikie denied any wrongdoing. In Britain, evidence provided by Boesky has led to charges against Ernest Saunders, the former chairman of brewing conglomerate Guinness PLC, in connection with an insider trading deal.
But with stock markets around the world rocking in the wash of last week’s turmoil, large and small play-
ers alike face an uncertain future. Many investors have been forced to reduce their expectations sharply. A few have seen paper assets dissolve. In Montreal, the value of stocks held by one of Burke’s clients collapsed to $10,000 from $100,000 in three days. For that unlucky individual, said Burke, the volatility in share prices “was like a roller coaster to hell.” And many brokers were already preparing to pick up the pieces of their clients’ broken dreams. Indeed, as the market crashed on Black Monday, Oct. 19, one frantic broker working the floor of the Toronto Stock Exchange tried to find salvation in the rubble, telling his colleagues, “If you think anyone is going to have to sell their house, recommend them to me.”
CHRIS WOOD with VICTOR DWYER,
ANN SHORTELL, SHERRI AIKENHEAD and RICHARD KELLY HEFT in Toronto and DAN BURKE in Montreal
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