back

Late last June, when the stock market was in the midst of a summer swoon, I spent a day at the headquarters of Charles Schwab & Company in San Francisco. The discount brokerage's success is directly attributable to the astounding rise in the percentage of middle-class Americans who now invest in the stock market—a proportion that is closing in on 40 percent of the country's households.

Upstairs, in his office, Mr. Schwab explained his investment philosophy to me. People in the stock market need to take the long view, he said. They shouldn't chase hot tips or hot stocks. "Over the long haul," he said, "the stock market outperforms every other form of investment."

Downstairs, in the lobby, however, all I could see was speculation. As people checked their stocks, punching up prices on computer terminals, I kept seeing the same names: Iomega, Presstek and other so-called small cap stocks that had run up wildly, insanely, during the first half of the year. They were crashing back to earth.

There was a tremendous amount of anxiety that day; people talked about how much money they were losing. It's fair to say that most people who had come into Schwab were doing exactly the opposite of what Mr. Schwab was preaching. They weren't trying to make money over the long haul; they were trying to make it right that second.

This is now the 14th year of the greatest sustained bull market in history and without question it has changed America. Middle-class Americans who used to fear the stock market now view it as an ordinary part of life.

This is especially true, of course, of the baby boomers, who are shoveling money into the market, primarily via mutual funds, which have grown by $2.5 trillion in just the last four years. Most baby boomers believe something their parents never did: that the stock market is their friend.

But this may not be so wise. I say that not because I think a bear market is right around the corner (I don't) or because I don't believe that stocks outperform everything else over the long term (the charts don't lie).

Rather, it is the way people are behaving in this bull market. They may think they're taking the long view, but is that really so? In fact, the more you talk to investors, the more you realize that they're chasing hot stocks and hot tips in an effort to make money fast. In other words, they're acting just like the human beings they are.

As a result, most of these investors won't do as well as they hope. Investing well is difficult—so difficult that most years 80 percent of the nation's fund managers don't beat the market average. For instance, most investors who bought aggressive small cap funds because of their impressive numbers in the first half of 1996 actually lost money in the second half when those stocks largely tanked.

The odds of success aren't so great, yet more and more baby boomers are depending on the market to finance ss retirement. Company-financed pensigns, as opposed to employee-controlled 401 (k) plans, are becoming less ubiquitous; now there's even bt noise about investing part of the Social Security trust fund in the market.

That means we may be creating a an even wider inequality gap in America. Those who have the skills and stomach to be good investors have a huge leg up on everyone else. And those who don't have skills? Well, they're out of luck.

There's a reason for the madness — and it's not greed. Rather, it's a kind of low-level desperation, as baby boomers, sensing that retirement is just around the corner, have begun playing catch up.

For most of their lives, they've been borrowers and they still are: Consumer debt this past year approached a record $1.2 trillion. Now baby boomers are afraid that time is running out. And in their anxiety they are taking bigger risks.

They're right to be anxious. Time is running short. But it's asking an awful lot to expect the stock market to save them now. For most, it seems far more likely that they'll look back someday on this greatest of bull markets and realize that it wasn't all that they had hoped for.