DAWG and I make the Wall Street Journal
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Want to Make a Killing? Day Trading Isn't the Way
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
Lamar Cook was tired of watching everyone else make money.
As a regular participant on Silicon Investor, an online stock discussion Web site, he had read
countless success stories about day trading -- a trading style that involves rapidly jumping in
and out of stocks, sometimes dozens of times a day.
So one day last October, Mr. Cook, home sick from his construction job in Gadsden, Ala.,
decided he could wait no longer. Using his online trading account with Waterhouse Securities,
he spent the day buying and selling two stocks several times for a profit of $800. "I thought it
was the easiest thing in the world," he says. "Until the next time I did it."
Just two days later, Mr. Cook again stayed home from work and day traded -- and lost a
staggering $9,000. In a panic to recover some of his money, he tried to buy another stock for a
quick flip, and lost another $2,000. "My wife and I lost two years of our savings," he said. "It
was horrifying."
Raising Eyebrows
The growing popularity of day trading has drawn scrutiny from securities regulators, who
fear investors are getting in over their heads. On Wednesday, U.S. Securities and Exchange
Commission Chairman Arthur Levitt said he is alarmed by the increasing popularity of day
trading, and warned investors that rapid-fire online buying and selling can be dangerous.
Massachusetts has cracked down on alleged misrepresentations and other abuses by firms
that offer office space and computer equipment to individual investors for day trading. "Our
primary concern is novice investors getting involved with day trading," says Matthew
Nestor, chief of enforcement of that state's securities regulations. "We want to make sure that
the risks that are involved in day trading are disclosed. Unfortunately, people think that day
trading is easy, and anybody can do it."
Still, new Web sites offering hot day-trading tips pop up all the time, and online message
boards buzz with stories about the fast money to be made in day trading. A new board on
Silicon Investor (www.techstocks.com) called "Are you considering quitting your dayjob to
daytrade?" has drawn hundreds of posts in the last two weeks.
And business is booming for firms that teach people how to day trade. Trader's Edge, in New
York, says there is a two-month waiting list for its day-trading seminar, which costs $1,495
for a weeklong course.
"We've gotten a lot of calls from people saying they've
decided to day trade full time," says John Markese,
president of the American Association of Individual
Investors. "They have $50,000 and they want to work it
up to a million by the end of the year."
Mr. Markese says such callers always ask him about what
sort of computer equipment and software will be necessary, but he says they never ask about
the risks involved. "To them, it looks like easy money," he says.
But it's anything but easy, says Tim Stefanich, a well-known participant on Silicon Investor
and a full-time day trader. "These people don't understand the risks," says Mr. Stefanich,
who trades from his Los Angeles home. "The hype of the Internet stocks is bringing people
in. These people are gambling, they're not investing and they're not day trading."
Mr. Stefanich says he frequently receives electronic-mail messages from message-board
participants looking to get started in day trading. He says that most investors he talks with
don't understand that day traders often have to risk large sums of money to eke out a profit.
They buy and sell large blocks of shares to take advantage of a price move that can be as little
as a few cents a share. And day trading is expensive in other ways, too: Mr. Stefanich uses
thousands of dollars in computer equipment and subscribes to a real-time trading system that
allows him to execute most of his trades in just two seconds.
He says many of the claims he sees on message boards about big profits in day trading are
overblown, and says the notion that anyone would quit a good job to day trade is
"completely insane."
"I do this full time, and I think I have as much experience as anybody. And I still have days
when I lose a lot of money," he says.
Sticking With It
But even some investors who understand the risks of day trading say they're drawn in. Tara
Rill took a leave of absence from her job as a sixth-grade English teacher in order to day trade
and, although she hasn't made a profit, says it doesn't look like she'll be going back.
Ms. Rill says she first noticed discussions about day trading on message boards about two
years ago. After five years as a teacher in Gainesville, Fla., she was looking for a career
change, so she started reading up on day trading. Last summer, she decided to take the plunge,
and after a $1,200 day-trading course she went on leave from her job.
Ms. Rill was attracted to day trading's fast pace, but says so far the going has been slow. She
is aiming for at least one trade a day, though there have been some days when she hasn't
traded at all. And day trading hasn't been profitable for her; she estimates she has about as
much money now as she started with.
"You have to go about this in a very serious way. It's not like you're taking a vacation to
gamble in Las Vegas," she says. "I thought long and hard about it because I knew I wouldn't
make any money for a year at least."
As for Mr. Cook, the investor who lost his savings, he says he still wants to start trading
again as soon as possible. He says he's done with day trading, but says he still plans on
quitting his job to invest in the stock market full time. "I figure I can let it beat me, or make
me better," he says. "I'm going to go for it."
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