Worst-laid Plans

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When too many people are bullish, holds one Wall Street bromide, the stock market is headed for a fall. If so, then maybe there was more warning of October's crash than most people think.

Starting last spring, observes leveraged buyout specialist Frederick M. Fritz, bullish sentiment had become so pervasive that dealmakers began throwing caution to the winds. "As the market took off, the discipline of recession scenarios crept out of their business plans," notes Fritz, who annually receives some 600 such documents as managing director of Banc-Boston Capital Inc., the mezzanine-investment arm of Bank of Boston.

"Before that trend set in, a business plan tended to be discounted or discredited if it didn't include a recession scenario as a basic element of conservatism."

Now that Black Monday has sobered LBO packagers along with everyone else, investors are demanding that entrepreneurs take off their rose-colored glasses and again include pullback scenarios. Because the stock market debacle has brought the inevitable recessionary business cycle closer, says Fritz, the presentation should portray a modest two-year downturn beginning by mid-1988. Indeed, he adds, it wouldn't hurt to include a second, worst-case, scenario showing how the company would weather an even more severe recession.

And as far as stock-market theory goes, the gloomier your worst case the better: there's also a saying that when too many people are bearish, stocks are heading for a rise.