September 12, 1999
Web Investors Are Redefining
What Brokerages Must Offer
By REBECCA BUCKMAN and SUSAN PULLIAM
Staff Reporters of THE WALL STREET JOURNAL
Online stock trading is just like any other service: You
get what you pay for.
For all the talk of Internet stock trading becoming a
"commodity" business -- one full of nondistinct
products that all cost the same -- it has actually
evolved into quite the opposite: a complicated,
nuanced segment of Wall Street hawking a wide array
of products at widely different prices.
It's enough to leave any Web investor with plenty of
questions, whether you've done it before or are just
starting out.
Take the most basic question: Where to trade? These
days, it could be anywhere from an old-line firm such
as Merrill Lynch (www.ml.com), where investors can
pay a yearly fee of $1,500 for help in managing their
portfolio, to young Datek Online (www.datek.com),
where trades cost just $9.99 a pop. The
extra-adventurous could even sign on at a high-tech
"day-trading" shop, where they might sit in a
professional-style trading room and zoom in and out
of stock positions by the minute to snag tiny profits.
And what about those subscription-only Internet
stock-chat rooms, which can cost several hundred
dollars a month? Are they worth it? And how good are
all those best-selling books suggesting riches through
day trading?
You get the point: New questions arise daily, and the
answers only get more difficult.
And that gets to the point of this column: to offer
some down-to-earth advice for those venturing into
cybertrading. There are an awful lot of you. Already,
some five million investors trade online, and a third of
all individual equity trades are done this way. Gomez
Advisors, an Internet consulting firm in Lincoln,
Mass., projects that an additional 16.3 million online
investors could swarm to the Web in the next 20
years.
The online juggernaut has gained such force that even
such big, traditional Wall Street firms as Merrill,
PaineWebber (www.painewebber.com) and Prudential
Securities (www.prusec.com) are getting on board,
despite playing down the importance of Web trading
over the past few years.
The Good and the Bad
But sorting out the good from the bad online -- and
finding value for your investing dollar -- has never
been tougher. We'll try to guide you to the best and
newest Internet-trading resources and services out
there, from Merrill Lynch to the $5 stock trade. We'll
also try to point out the growing number of pitfalls
for Web investors -- such as Internet-based stock
scams, poor trade executions and just plain lousy
advice.
We'll also dig up and profile some of Web investing's
most colorful personalities, whose stories illustrate
just how varied each investor's Internet-trading
experience can be.
Some, like former T-shirt salesman Rande Isabella,
have embraced the Web with such gusto that they've
made it their full-time vocation. Mr. Isabella, who has
also worked as a music composer and producer, has
become something of a guru on the popular Silicon
Investor stock-discussion Web site
(www.siliconinvestor.com), where he presides over
discussion forums like, "Rande Is ... HOME", and
"Rande Is ... FISHING," a place where investors chat
about low-priced stocks.
Mr. Isabella claims about 2,700 people have
"bookmarked" his sites, from which he issues advice
about stocks based on historical and technical market
indicators.
"Now I'm becoming more of a Web host," says Mr.
Isabella, 42 years old, who works out of his home in
rural Williamson County, Tenn. "It's turning out that a
lot of people are learning from what I'm telling them."
He says he has three online-brokerage accounts and
makes five to 30 trades a day.
Calming Down
Contrast him with Gary Korn, a Tucson, Ariz., lawyer
with a seven-figure portfolio who now invests mainly
with Merrill Lynch. A formerly frenetic trader who
would make as many as 100 trades a day from his
Fidelity Investments online account, Mr. Korn was
eventually won over by young Merrill stockbroker
David Furmanski, who helped him diversify his assets
and develop a financial plan. But because Mr. Korn,
44, now has his money in a Merrill Unlimited
Advantage account, he can check on his portfolio and
make some trades online. He will pay as much as 1%
of his assets in a yearly fee.
Since he's holding longer-term investments now, Mr.
Korn is "totally, 99% less concerned" with how his
stocks are performing, "as opposed to freaking out all
day about where the stock market's going," he says.
"It's a nice feeling."
Indeed, investors like Mr. Korn may represent the
future of online investing. Now that the younger,
techno-savvy set has already moved online, slightly
older, more wealthy investors will be the ones opening
new Web accounts. And these investors are bound to
be very demanding, expecting extra services more
traditionally associated with pricier, full-service
brokers than online firms.
Already, more expensive discount brokers such as
Charles Schwab (www.schwab.com) and Fidelity
Investments -- each of which does a brisk business
online -- are rolling out the red carpet for more
affluent investors with perks like free Wall Street
research and access to hot initial public stock
offerings. Valued customers at each firm also get
more-personalized attention from a team of brokers
whom they can reach on the phone with questions.
As online investing gains new adherents, "it's not that
all those people are going to go to E*Trade," says
Alexander D. Stein, an executive vice president at
Gomez Advisors. "Many of them will stay at Merrill
Lynch, and look to use the Internet as well as the
telephone, as well as the branch office."
The fate of day traders and others who have hopped on
the Internet in hopes of making a quick profit -- as
opposed to the more traditional reasons, like taking
advantage of lower stock commissions and making
their own investment decisions -- is less clear. Day
trading has flourished in the midst of the
longest-running bull market in history, and it could be
tougher for "scalpers" to make their tiny profits in a
flat or down market.
But the Internet, with its power to democratize
investing through lower costs and easily available,
professional-quality information, is clearly not going
away. Soon, nearly all investors will have to become
proficient with their mouse and browser to take full
advantage of what Wall Street has to offer.
-- To contact Rebecca Buckman and Susan Pulliam,
write: The Internet Trader, The Wall Street Journal
Sunday, 200 Liberty Street, New York, NY 10281.
Email: online.investing@wsj.com |
