Betting it all on the market: why America is wrong to wage its future on Wall Street.

• Author: Nocera, Joseph
• Position: Cover Story

A few weeks ago - the same week, as it happens, that the Dow Jones Industrial Average topped the 6,500 mark, after the biggest one-month climb in stock market history - The New York Times Sunday magazine put a picture of a mutual fund manager on its cover. His name is Michael P. DiCarlo; he is 40 years old, and since 1988 he has been running something called the John Hancock Special Equities Fund - one of the hotter "small cap" funds around, with an eye-popping annualized return of more than 25 percent over the past five years.

The story inside turned out to be a very long profile of DiCarlo, in which we learned, among other things, that despite the market's extraordinary - some might say, gravity-defying - run these past few years, DiCarlo remains extremely bullish: "The next five years will be the most significant time to really accumulate wealth this country has ever seen," he boldly proclaimed. We learned that he has a putting machine in his office; that at the age of 19 he bought a house with money he had made booking rock bands; and that he had survived a brain tumor when he was 20. In other words, we learned the sorts of things one reads in celebrity profiles. Which, when you think about it, is what the story was.

And of course we learned about his favorite market sectors (energy and technology), and his favorite stock, America Online - a stock that has been tanking for the better part of the last six months. It was, in fact, DiCarlo's travails with AOL that formed the narrative heart of the story: Would the stock rebound? Would it continue to sink? Would DiCarlo's table-pounding faith in it turn out to be his biggest triumph or his downfall? (What the story didn't mention was that giving DiCarlo so public a forum as the Times to talk up the virtues of AOL was bound to help the stock in the short term. But that's a story for another day.) All of this was told with the sort of dramatic flourishes normally reserved for crime stories. That the flourishes didn't really work - I can tell you from personal experience how hard it is to dramatize a guy sitting in a room watching stocks going up and down on a screen - was almost beside the point. A mutual fund manager betting it all on a volatile, risky stock is something most of us have come to understand and appreciate in our bones. It is, after all, our money he's risking.

Hardened market cynics will no doubt view the appearance of a mutual fund manager on the cover of the Times magazine as the surest sign yet that the end is near for this, the greatest bull markct in U.S. history - a 14-year span that has seen thc Dow rise nearly 6,000 points. And who knows? Maybe that's how it will turn out. Maybe someday we'll look back on the fall and winter of 1996 and wonder how we could possibly have missed all the signs that the bull was winding down. But then, that's the way it is with the stock market. Its every twist and turn is always obvious - in retrospect.

And a year or so ago - back when the Dow was a mere 5,000 - that probably would have been my reaction too. But now the article provoked in me a different set of concerns. I found myself wondering not so much what the article signaled about the health (or lack thereof) of the current bull market, but rather what it said about us, and the financial culture (for lack of a better phrase) we've created and embraced. Indeed, what struck me most about the story was the way it unconsciously underlined the extent to which we've become obsessed with personal finance - with markets and mutual funds and every last tick of the Dowjones average. The story simply presumed, for instance, that the readers of the Times magazine were inherently interested in the daily life of a fund manager, and it was full of terms of the trade that the author never bothered to translate - taking it for granted that her readers already knew what they meant, that they had become part of our common language. Most of all, there was an underlying, but unmistakable, assumption running through the story that all this stuff - the movement of the Dow, the doings of a mutual fund manager, this stuff we never used to think about, much less care about - now mattered to us deeply, because it affects the lives of a huge portion of the American middle class.

This assumption, of course, is correct. The statistics are absolutely clear: More than a third of American households now have money in the market - a stunning percentage that ranks right up there with the number of households that have personal computers. And it's serious money these households have put into the market, money people really can't afford to lose. That may be the most worrisome thing of all about the financial culture we've created: A large percentage of the American public is betting that their prospects for a better life will come not from their jobs or their talents, but from their willingness to ride a hot fund manager or a hot stock as far as it can carry them.

Riding the Bull

Let me take a moment here to stress what I am not arguing. I am not suggesting that average Americans are too dumb or too flighty to participate in the stock market, or that this is the sort of thing that is best left to the experts. Given the fact that 80 percent of the nation's mutual fund managers don't beat the basic market indexes, that would be a rather difficult thing to argue in any case. But the 1990s have also been a time when the small investor has tended to act more rationally and calmly than the big boys on Wall Street. Even now, with the Dow reaching such unprecedented heights with such unprecedented speed, the small investor has shown very little of the euphoria that usually characterizes a market mania. Yes, they...