NYT Article Pt. 2
When Dave begins shorting KIDE, 4 Kids Entertainment, and it, too, turns against him, I find myself glaring at the price, rooting for KIDE to drop, to move the way Dave wants it to move. I feel almost desperate. "Come on," I say. Dave's back is locked upright; his forehead inches toward the screen. "That's O.K. We'll find another one," I want to say.
I didn't expect to like Dave as much as I do. But I feel a jolt of sympathy seeing how he struggles. He works hard; he worries when things are bad, laughs when things are good; he means well. On top of that, he's starting to remind me of a girl I once dated, same downwardly sloping eyes -- same trouble guessing right about the future. I'm on Dave's side.
He gives a quick, deep dissection of KIDE, many of the background facts memorized. He speaks in that heart-rending way only an aching businessman can, about something as silly as a toy company, that it's suddenly underperforming for reasons known only to God. Dave can't make up his mind on this one. He spends the next nine minutes canceling, buying, canceling, buying, trying to get out of it, and in the end he loses $163.
ark Barton was a day trader, hooked on volatile stocks -- Xoom.com, CMGI, Yahoo, eFax.com; he confused past performance of a stock with what it might reliably do in the future; he had no real experience in the securities world; he failed to turn a profit; and finally he blew out his stake completely. From April '98 to April '99 he lost $400,000 at All-Tech before the brokerage closed his account. In October '98 his wife moved out of the house. In May he pulled all of the furniture onto the lawn and had a yard sale.
In June he opened a trading account at Momentum Securities across the street from All-Tech, with $50,000, later adding $37,500. Over 14 days in June and July, the Rocket, as his fellow traders dubbed him, lost $85,000. On a Tuesday he lost another $20,000 and received a margin call for cash to cover his losses; he wrote a check for $50,000 which, at first, would not clear. He went home that night and beat his wife's head in with a hammer and stuck her underwater for a while and then threw her in the closet. Barton killed his children the following night, and on Thursday, July 29, he visited his lawyer to remove his dead wife from his will.
That afternoon at Momentum Securities, he spoke to the manager of the trading shop about reopening his account; the manager agreed to work around Barton's financial problems. Maybe Barton didn't believe him. Or maybe he did, but wasn't looking forward to any more trading opportunities, because he shot him. He entered the trading room and told some of the traders who'd lent him money from their personal accounts over the past months that, although it had been a bad trading day, it was about to get worse. He killed four in that office, and five across the street where, before opening fire a second time he told the investors at All Tech, "I hope this doesn't ruin your trading day."
That was on July 29. I had spent the 26th, 27th and 28th with Dave. We spoke that next morning; he was surprised at how quickly the "tragedy industry" was targeting day trading as the cause of Barton's rampage, and we both assumed that as the facts unfolded, Barton's rampage would have had very little to do with online trading.
In the week following the Mark Barton shooting, the day-trading industry was depicted as one in which professionals knowingly cater to undereducated, underfinanced newcomers with no experience in the movements of markets and lure them in by exaggerating the upside and playing down the danger, in order to increase trading volume, which, in turn, creates higher commissions on the activity of their clients' accounts. In the media pile-on that followed the shooting, traders were shown receiving cursory seminars stressing superficial stock data, then seated at the hot new technology wired to the markets, with an open channel to borrow money to multiply their stake two- to tenfold.
Regulators accused day-trading firms of deceptive advertising (it was around this period when the ads became about the hope of revolution rather than sickening wealth), illegally transferring funds between client accounts, allowing their clients to circumvent rules governing short selling. Critics suggested that potential day traders be required to go through some kind of psychological test as a screening process, the way police officers and the Secret Service do.
Dave said to me: "It's a sad thing, because nothing really positive comes from something like this, the shooting. When you happen to do what is being vilified, it's not a nice thing. But at the same time I'm thinking, 'Maybe I'm not really a day trader.' "
By this Dave means that he looks at fundamentals, does research, has discipline. He keeps $50,000 in his Datek and other accounts, the ones he trades from; if these accounts swell because of a good day, he wires the winnings into a separate Charles Schwab account, which he says is strictly for long-term investing. "This way it's like going to the casino with only $50 in your pocket," he says. "Don't bring your wallet." What Dave does, he reminds me, is all about discipline, sobriety.
ant to see something?" Dave says innocently. He tries to imitate what institutions do when they generate volume and fool other people into thinking a stock is suddenly hot. By taking some money from his untouchable Schwab account -- money he pledged not to use for day trading -- and throwing up an order on the opposite side of his bid, he weakens the selling side so his Datek bid goes through at the price he wants. Then he quickly cancels the Schwab sell order before it gets picked up.
He'll use the untouchable Schwab account for these head fakes four or five more times today. He'll claim that he's doing so for my benefit. Maybe so, but he'll also end up using the Schwab account seven different times to buy and sell. In his months as a day trader, Dave has learned a few tricks.
Recently, Dave spotted Yahoo, Amazon and five other volatile stocks at prices he liked; he pretty much threw his leave-your-wallet-at-home rule out the window and used his Datek, E*Trade and Schwab accounts to leverage 75 percent of his savings -- or $181,350 at that moment -- to buy and hold them overnight. (Most day traders consider it a cardinal rule to sell their holdings before the close, but Dave is among those who think it's sometimes worth the risk to hold a stock overnight, hoping that it will "pop" at the opening bell, a technique he calls "swing trading.") The next morning he made more than $12,000 after taxes and commissions -- his best single day ever. "Remember the ninja analogy," he wrote to me in an e-mail afterward. "You wait and wait and wait in the dark. You wait for the perfect time and then you strike. And strike hard and aggressively."
Oddly enough, Dave had been in a casino only four times before he started day trading, and has been one time since. During his last visit to Minnesota, he and Felice sat at the blackjack table in the Black Bear Casino of the Chippewa Indians for a couple of hours, and built up $250 on $5 bets. "After day trading, it's such a meaningless amount of money," he tells me. When he and Felice cashed out, he says: "I remember looking at the other gamblers and thinking, What are these people going to do when they find out there's day trading? They think they're having fun at the slot machine -- just wait. It was a kind of frightening thought."
I find a paycheck for $9,000 in the mail when I get home. It's a lot of money for me, and the first thing I think when I look at it is that I want to day-trade it tomorrow, before I waste it on food and rent. Datek's minimum to open an account is $1,000. The rest is up to me. If I had bought $9,000 worth of CheckFree Monday night when Dave bought it, and sold it the next day when he did, I would have $9,345. If I had bought Cisco with that $9,345 when Dave mentioned it and dumped it when he told me to, I would have $12,650. If I had bought 1-800-Flowers with that $12,650 on the Thursday he bought it at 15, and sold when he did the following Monday, at 23, I would have $19,396. Why not get a little something for yourself? Who's counting?
e meet for dinner, Dave and Felice, my wife, Lara, and I, at a restaurant on Wisconsin Avenue. We're sitting in the back in a long booth, with a tiny beaded lampshade over the table. "It looks like a cave in here," Dave says.
It doesn't look like a cave in here. Dave is carrying the rough text of the Caveman Investor, which is his name for a day-trading Web site he wants to create. His Web site was called Daytradingdesk.com, but he decided against anything like "day trader" after the Barton shootings. So it's www.cavemaninvestor.com, after the Phil Hartman sketch on "Saturday Night Live," "Unfrozen Caveman Lawyer" -- a thawed Neanderthal who didn't understand our modern ways, but knew a bad bankruptcy settlement when he saw one. The idea is to help out new day traders.
The way Dave sees it, day trading is not going to go away. It's not a bull-market phenomenon at all. It's part of America now. Dave once showed me a chart predicting that the Dow would continue rising through 2007. Day trading in a down market is tougher -- you can make money shorting stocks, though the risks are higher because your potential losses are essentially unlimited - but he doesn't believe a sustained down market is anything to be afraid of anytime soon.
We order drinks. Dave would like to rear back and burn passionately about Caveman. Maybe that's why we're here, to listen to this speech, but Lara is plainly not interested, and Felice seems anxious and a little fed up. Also, it's Sunday, and maybe she just wants to have fun.
There is a picture of Felice with Dave on his day-trading desk. They are standing in front of a lake at sunset, both wearing thick sweaters; though the lake is thawed you can see snow on the banks. This spot, with the house out of frame, is where Dave's mother, Joyce Goehl, fought a malignant melanoma. She made trips to the John Wayne Cancer Institute, in California, to receive experimental vaccine trial treatments. For much of the next three years she lived at the house on the lake. "She was such a fighter," Dave says, "and gave it everything she had to beat the disease." In the fall of 1997 she died.
"It would have been nice if I had been in the kind of job where I had given myself the freedom to be with my mom," Dave says. Between then and the spring of '98, Dave wanted out of Wallace, and attributes this to a need for independence, but it seems correct also to assume that, like many people, Dave dealt with loss by stifling grief and turning his world upside down, quitting his job and moving to D.C.
He is leaning slightly forward, the cock's comb of his hair jutting up, the weight of his shoulders hanging slightly. He has that Caveman draft on the table. Felice starts telling war stories from their days at Wallace. Everyone is laughing. The details of Caveman Investor will have to wait for some other time. I have the feeling Felice is afraid of Dave's wild new leap, and is trying to silence him, maybe to protect him from himself.
oday is the initial public offering of Drugstore.com. We watch it as it begins, running wildly. Dave asks me if I'd like to try trading. I take his chair.
"The price right now is 513 1/816," Dave says. "It opened at like 70 or 69 and dropped like a rock." After dropping like a rock, it has been seesawing up and down.
"Right."
"So you have to figure out where it's going to bottom -"
"Oh, Christ."
"-and then buy. We don't want to catch a falling knife."
"Right. Should I do it now?" The bids and offers are matching, moving up in chunks at the speed of an overcaffeinated Pac-Man.
"Not yet. Delete my password and type in Matt 1-2-3 and enter the bid." The price seems to be hovering at about 50. "It looks like it might hold there," Dave says. "What the hell. Let's try it."
I enter a bid for 50. "I might've missed it."
Dave says, "Yeah."
"It's a wild bronching bull."
"It's strong. Shoot, it's selling so fast. Try to buy it at 52. See the chart. You've got volume. The chart looks like it's kind of figuring out what it wants to do right now. It's at 5114. That's a big seller over there. That's a big buy order."
"Look at that. It's coming right up."
"Come on. Enter it. It still hasn't clicked."
"I already missed it, probably," I say.
"It might come back and hit it. Here it comes. Boom. You should be filled now. All right, now let's get ready to sell it."
"Right."
"You're in the money."
"Come on, Drugstore." I'm happy for a few seconds, but the price keeps flickering. "Now it's dipping back down again." The spread between the price I paid and the current price is almost a dollar. Then it's nothing. The price is lurching up and down a quarter every tick.
"So what do you want to lose?" Dave says. "A hundred bucks? You bought it at 52, so how about if it goes to 51 or gets close to 51, you'll sell it and you'll lose a hundred bucks."
"O.K."
"It'd be nice for you to make some money on your first try," he says. And even as he says it, the numbers start flickering the other way again: 51, 52, higher. "O.K.," Dave says. "Now here it goes, back up. How do you feel?"
"I feel wired," I say.
"If it was your money, you'd probably be even more wired. Do you want to make a hundred bucks?"
"Yeah."
"Do you want to make a hundred bucks or do you want to sit here and wait and make 200 bucks?"
"I want to make a thousand dollars. If I got 50 grand I could take it easy."
"Well, you can make a hundred bucks right now."
"Oh, I can."
"It's going to go through 53. It's up to you -"
"I'm just thinking."
" -- or you can wait."
"This is what I've seen you do."
"You're ramping," Dave says. "So how high is it going to go?"
"Right. Jesus Christ. What's happening here?"
"There's 53. You've got a hundred bucks."
"Should I go for it?"
"It's whatever you want to do. You can wait. It could go to 70 today. You know, who knows?" Dave watches the volume on the stock, which is extremely high. "Look at all the people. Look at the size on that bid."
"What if I sell at 54? What do I make?"
"You're starting to get parabolic here." He sounds pleased. "This is cool. Look how the bid is higher than the ask. Some people are paying 5314. Some people are paying 54."
"Jeez."
"You could sell it at 55 and you've just made 300 bucks. Look at it now, it's at 54; 200 bucks."
"This is like 10 lunches right now, sandwiches up at the zoo." I had been worrying about where to get lunch for us today, but suddenly that seems dumb.
"54 1/2. 54 11/16."
"It's been steadily climbing since I got in."
"Yup. We got you in right at the bottom." Hey, I guess maybe I have a knack for this. "5438. 5412 coming through. 5438. That's a slight down. Now it's coming down a little bit. And so what it's doing is it's going up to 55 and it's meeting resistance."
"Right."
"So you can be strong and say, 'All right, it's going to come back down, but I'm going to hold on and wait for it to come back up.' Or you can be like, 'Oh, my God, it might go down to 50. I'm going to flush it right now.' "
"Right." What would Arnold do?
"Whatever you think is the right decision. But it has changed its trend now. It's 5412 on the ask, 54 11/16. There, it's getting strong again. You want to have a bunch of shares on the bid side. You want them to keep fighting for the stock."
"There's 2,700 on the bid side."
"It's looking good for you. If you break through 55, it could go to 60. Then you have 800 bucks. Break through 55, c'mon. Look at the chart."
"Should I look at the big chart?"
"Yeah. You're at 54 15/16. You're up 300 bucks."
It didn't feel like $300. It felt like a penny with the potential to burst into a million dollars. "I'd like 54 1/2 or something," I say.
"It's going to be at 56 before you know it. Here it comes."
"O.K., at 56, I make 400 dollars."
"That's a psychological thing if it can break and get through to 56," Dave says. "Then everyone's thinking the next major area is 60. That's what all the day traders are thinking."
"These are all small numbers, though. Is there any institutional interest?"
"No, I think they're all day traders. They're all people just like you and me. Here you go. It's getting close to 56. You're almost 400 bucks up." Why does that sound so crummy? He says, "It's getting weak."
"More than slight weakening," I say. "It's falling off a little."
Dave says, "I think it's going to make a little turn here. You're already back down to 55. See how fast that went?"
"Yeah."
"Notice on the chart, it's tailing off."
"Right. Do you think I should get out?"
"I'll let you call it. I'll let you make the call."
"54's 200 bucks."
"It's good to have 54 on your finger right now because it could be there in a heartbeat. Oh, no, it's 54 1/2 now. It's dropping. I'd, I'd flush it right now."
"54."
"Yeah."
"I can't do it." This is so depressing. Pride shrieking -- maybe not pride, but I know I can do better than this. I can't cash in such a measly amount: 54 3/8; 54 1/16. "It's going down." It's going to turn around or I kill myself. "I agreed to go, but I couldn't do it."
"You don't know how valuable this experience is for writing this article." That's not what I want to hear.
"Man," I say. "Now it's down to 53. This is a downward trend."
"And you're frozen."
"Yup. Damn. What are you seeing?"
"Well, the reason I wanted to flush it right there is because that's a reversal. So you probably want to do something now because, otherwise, you're going to be back at 52. I mean, it's going to 52." Dave laughs.
"O.K."
"Yeah. And now you've got to deal with the technology. I think it's open. You just have to page down. Now it's going in reverse, coming back up, and it's going to hit your 53 so you're going to get ticked because the stock's going to probably go up again and you got shaken out."
"So, should I cancel?"
"You can try. Click 'open orders' again. That's easier because then you can see if it got filled. It probably got filled. Whoops."
"What?"
"There, you sold. You made a hundred bucks."
"O.K. Sorry," I said. "Was I up $400?"
"You were up like 390."
"52," I say. "And it almost hit 56."
Dave looks at me. "Want to go for another round?"
was wrong about day trading. It's not boring. I now understand what Dave means when he says it's the ultimate. Gambling with big money is fun; just imagine leveraging everything you own. Add this to the arsenal of American addictions. Of course I want to go another round.
This time I lose $50. I imagine thousands of other day traders at their desks, getting ready to pull the trigger, trying to identify the real momentum. I don't have a knack for this after all; I feel like a piece of livestock with an ulcer waiting for some food to come down a chute. Dave takes the controls back and nets $350. He makes it look so easy. Maybe, I think to myself, he really does know a few things. I hate to admit it, but over the next week, I think very seriously about taking money out of my savings account and following a few of Dave's tips. Why not?
And yet, most day traders I talked to seem not to adore this life -- one foot out the door, so focused on what comes next; they seemed almost afraid that they would end up trading for the rest of their lives. Less than a year into his new "career," Dave is the same way.
"There are things that I'm missing that I really like," Dave says to me one day. "I like working with a team, on a mission, creating something of value -- and here I'm not doing any of that." After all of his celebratory chatter about piling up easy money, the comment seems sort of shocking. He talks more about fundamentals now, about gathering information the way Peter Lynch might, about how well his long-term picks are doing.
And he talks about his Web site for day traders, boiling down all the advice out there for day traders into one simplified, straightforward newsletter, "A newsletter of newsletters." He's brought in experts from various fields to contribute content -- but one attraction is that they are not professional money managers, since those people are part of the problem. The new experts are people like Dave, revolutionaries, who happen to work in hot sectors like biotechnology and can comment on the entire industry. Like a good Amway salesman, Dave is looking beyond the drudgery of the daily grind. He needs bodies. If he is an expert on trading, he can leverage what he knows; he can charge people for it.
I listen to him now and I realize that this revolution was over before I got here. Maybe the giant brokerage houses resisted the rise of the small investor for a time, and little guys like Dave were some sort of threat, trading for 20 bucks or 15 bucks or 6 bucks a shot, thumbing their noses at the mystique of Wall Street. But the brand-name firms all wised up pretty quickly. They'll all take your 20 bucks a shot, if that's the way you really want it. The online trading industry spent more than any other during this year's World Series, in a frantic race to draw prospective online traders. And much of the corps that cover investing in the media seem to have given up skepticism completely, praising a "new set of rules that can make you rich"; they're more breathless than the ads.
Whatever happens with his Web site, or his occasional existential crises, I don't imagine that Dave will quit day trading anytime soon, and I think he is right when he says that day traders are simply part of the landscape now. He once pointed out to me that, really, day trading is just a new variation on a pretty old theme. "Since the beginning of time there have probably been ways that you could take your money and make it into a lot more money without having to work very hard," Dave said, and I couldn't disagree with him. "Day trading is like that. Except it's on steroids." |
