PALO ALTO, Calif. (CNN/Money) -
Each Saturday the New York Times publishes a list of 20 stocks held by the largest number of client accounts at Merrill Lynch, still a reasonable proxy for which companies American stockholders own.
In a down year like this you'd expect to find a lot of downtrodden issues, and you will. But the stocks that are down the most share a troubling similarity: Each is a progeny of AT&T.
What you see here is a perfect example of investor inertia. In part because average investors have been taught (by the financial services industry, the media, their neighbors and so on) to buy and hold, folks who were holding shares of Ma Bell in 1984, when the split-up game began, still own them.
You can see that by looking at the AT&T offspring among the 20 most widely held stocks today, listed in order of worst year-to-date stock performance. All percentages, almost needless to say, are negative: Avaya, 81.6 percent; Lucent, 76.4 percent; Agere, 67.3 percent; AT&T Wireless, 48.5 percent; AT&T, 23.6 percent; Verizon, 17.2 percent. (It's worth noting that Verizon's decline constitutes "outperforming" the market, given that the S&P 500 index is down 20.8 percent this year.)
Not on this list are five more offspring of AT&T: NCR, SBC Communications, Qwest, Vodafone (which bought SBC spin-off Airtouch) and BellSouth. When AT&T's spin-off of its cable business is complete, shareholders will have yet another stock, AT&T Comcast. That will give the Ma Bell buy-and-holder a whopping 12-stock portfolio, not much of it good.
Over time, the AT&T offspring portfolio has done rather well, as CNN/Money reported a year ago. That performance obviously has been hurt by the dismal showing of the equipment parts of the former empire, namely Lucent and its progeny, Avaya and Agere.
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There's an important lesson to be learned here, namely that though there's nothing wrong with investing for the long run, it's imperative to re-evaluate regularly. Did you really mean to keep shares of Avaya and Agere forever? Stockholders in AT&T typically were risk-averse, show-me-the-dividends kind of investors. Back when they bought AT&T, it was a predictable monopoly. Even its Baby Bells made their money from regulated services.
Enter Avaya, which pays no dividend and competes against the like of Cisco and Nortel to sell phone equipment to big businesses. Also Agere, no dividend, which is a semiconductor maker going up against communications chips makers like Broadcom and Applied Micro Circuits.
So should you dump these shares because they're down? That's a subject for another column. The better question is, do volatile, dividend-free technology stocks belong in your portfolio? That's for you to decide.
Given what Merrill's clients own today, it looks like a decision not many have made.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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