By Eben Shapiro N.Y. Times News Service NEW YORK _ During a
quarter in which the large stock exchanges advanced only modestly,
the over-the-counter market showed robust growth.
"The over-the-counter market led the way," said Laszlo Birinyi,
the head of Birinyi Associates, the Wall Street research firm.
He said the over-the-counter market gained more than 10 percent
in the third quarter, compared with gains of about 4 percent for
the other exchanges and indexes. The Dow Jones industrial average
gained slightly less than 4 percent for the period.
With billions of dollars pouring into the stock market,
investors are growing increasingly frustrated by the lackluster
movement of Big Board stocks.
"The spirit is willing, but the flesh is somewhat reluctant,"
He said investors had become spoiled by the prolonged bull
"Now we are going back to eking out gains," he said. "The
prevailing spirit here is frustration."
Hugh A. Johnson, the director of investment strategy for First
Albany Corp. in Albany, N.Y., said, "The performance of the
markets, with the exception of some of the small-capitalization
issues, has been guarded, trendless and friendless.
"People are finding better value in the over-the-counter
Several experts said the strength of the over-the-counter
stocks was unlikely to be a passing fancy.
"When small-company stocks come to life," Johnson said, "and
begin to outperform the market, that outperformance tends to last
not months, not days, but years."
Jack A. Sullivan, a principal with Van Kasper & Co., a San
Francisco-based investment firm, noted that the strength in the
over-the-counter market followed years of neglect.
"The NASDAQ's terrific performance shows that there has finally
been a recognition that some of the smaller, entrepreneurial
companies in this country have really learned how to manage their
businesses," he said.
He said investors were increasingly interested in ferreting out
companies in which the chairman is the founder and largest
"That's the kind of company investors are paying for," he said.
Sullivan cited Advanta Corp., a financial-services company
based in Horsham, Pa., as one company with high insider ownership
and a strong growth rate. The company's stock rose 83 percent in
the quarter, to $30.
The flip side of the enthusiasm for the smaller companies in
the over-the-counter market is a growing impatience with the
performance of the large-capitalization companies traded on the New
York Stock Exchange. Many Big Board stocks are now considered too
expensive, and investors are increasingly nervous that the
companies will be unable to post earnings increases commensurate
with the run-up in their stock prices earlier this year.
"There is intensifying concern that we will not get a strong
enough recovery in the economy and earnings to valdidate those
large-capitalization stock prices," said Johnson of First Albany. …