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March 5, 2000
Volatility Is Ally
To Day Trader
By REBECCA BUCKMAN and SUSAN PULLIAM
Staff Reporters of THE WALL STREET JOURNAL
The Dow Jones Industrial Average is down sharply from its peak earlier
this year. Federal Reserve Chairman Alan Greenspan is jawboning about
the overheated economy and could raise interest rates again.
To investor Joe Copia, it's all background noise.
Mr. Copia, a vice president at a gas-supply
business in Bonita Springs, Fla., is a short-term
investor -- someone who moves in and out of
stock positions quickly, sometimes within minutes.
Those huge see-saws in the market over the past
few weeks? The moves that have seen the Dow
drop hundreds of points in a day while the
technology-laden Nasdaq Composite Index soars
to new heights?
No problem. "The more volatile and crazy it is, the
better," says Mr. Copia, 42 years old. He and his
fellow day traders, he says, "really are having much
better returns [now] than, I would think, the buy-and-holders. I know that
I'm doing better."
Essentially, investors like Mr. Copia can steer clear of bigger market
trends by simply buying a fast-moving stock -- any stock -- at a certain
price and selling it moments later for a small profit. If they do it successfully
over and over, the profits add up.
Selling Short
That's a very big if. Some studies have shown that most people pursuing
the complicated, rapid-fire trading strategy lose money, even in a volatile
market. Day traders also can lose big when they sell stocks short, meaning
they bet on a stock-price decline by borrowing shares and hoping to repay
them later at a lower price. The losses can be magnified when trends don't
go their way.
Mr. Copia declines to say exactly how much money his small trading
portfolio has made so far this year, though in late February he allowed that
he was "still up this month." He devotes less than $40,000 of his money to
minute-by-minute trading, which he does from his desk at work between
calls from customers. He pursues a more conservative strategy in his larger
retirement account.
Mr. Copia shares many of his short-term picks with other traders on his
own Web site (allstocks.com/copia) and on his discussion "thread" on the
popular Silicon Investor site. His methods aren't too complex: Usually, Mr.
Copia buys small lots of stocks, perhaps around 500 shares, after noticing
a news story or press release from a small company, or hearing a rumor
about a stock in some of the other chat rooms he visits daily. Those events
can often produce price pops in tiny stocks.
Often, he buys and sells the stock several times in one day; sometimes, he
holds positions for months. Mr. Copia gets his news from a service called
MarkeTrack and consults a friend who does technical analysis on stocks,
studying and charting their price trends.
On Feb. 22, Mr. Copia issued a call on his Web site to buy shares of
Stockscape.com Technologies Inc., an investment Web site that Mr.
Copia believes "could be another E*Trade." Why? "I just liked the story
behind it," he says.
When he picked it, Stockscape was trading at $1.39 a share, according to
Mr. Copia's Web site. Now, shares are trading at a few pennies less. "It
went down two days ago," Mr. Copia lamented one day last week. "I
should have gotten more."
The Good News
He had better luck with Igene Biotechnology. Mr. Copia recommended it
Feb. 9, when shares of the unprofitable Columbia, Md., concern were
trading at 12 cents a share. Mr. Copia had heard the company was
involved in litigation with agricultural giant Archer Daniels Midland --
litigation discussed in the company's latest quarterly report filed with the
Securities and Exchange Commission. Rumors that the company might
eventually get some money out of it sent shares up to around 58 cents, he
says.
Short-Term View
Some of Joe Copia's recent stock picks
Stock
Current Price
52-Week Range
Stockscape.com
$1.36
$0.54-2.25
Igene Biotechnology
$0.43
$0.05-0.64
Talk City
$13
$7-29
Beyond.com
$5.25
$37
New Gold
$3.28
$0.03-4.29
Summit Environmental
$2.19
$0.375-3
Source: BigCharts.com
Some of the other investors on Mr. Copia's Silicon Investor thread actually
do extensive research on the tiny technology stocks they trade. One forum
participant -- a computer consultant who goes by the pseudonym Dave
Gore, but says his real name is Bob -- bought shares of oil-and-gas
concern Aspen Group Resources (formerly Cotton Valley Resources)
after speaking to the company's new chief executive and reading industry
reports.
"I'm not one of those guys who buys strictly momentum stocks and is
afraid to go to the bathroom" for fear of missing a quick price drop or
surge, Mr. Gore says. Though he says he can zoom in and out of stocks
with the best of them, he holds many of his positions for as long as six
months or a year.
And the strategy has worked, he says: Mr. Gore's portfolio of small
stocks, namely those quoted on the National Association of Securities
Dealers' over-the-counter bulletin-board service, is up 300% over the past
two months.
In some ways, the whipsawing market has forced individual and
professional investors to make more short-term plays, particularly with
today's hot technology stocks, says Greg Smith, an analyst with investment
firm Chase Hambrecht & Quist in San Francisco. "The tried-and-true
value investing ... just hasn't worked over the past couple of years," says
Mr. Smith. Recently, "the more-frequent traders have probably
experienced some of the best returns."
Opportunity Knocks
And they haven't done it by buying big-name blue-chips, or even large
technology stocks. At CyBerCorp, a fast-growing day-trading firm soon to
be acquired by Charles Schwab, volume has surged recently on days when
the Dow has dropped. Chairman Philip R. Berber notes that on one recent
day, when the most heavily traded stocks in the broader market were big
guns like Dell Computer, Intel and Cisco Systems, the favorites among
CyBerCorp's customers were a totally different set of companies: a
drug-development concern called Ariad Pharmaceuticals, for instance, and
Carrier1 International, a European telecommunications company whose
share price nearly doubled on its first day of U.S. trading.
"So there were tremendous intraday trading opportunities," no matter
where the stocks wound up at the closing bell, Mr. Berber says.
Still, intraday trading isn't for everyone. Small technology stocks are so
volatile that any correction in the tech sector could severely dent your
profits. Mr. Smith notes that it's not uncommon these days for hot new
stocks to lose half their market value "anytime anything changes in their
story."
--This is Rebecca Buckman's last Internet Trader column for The Wall
Street Journal Sunday. She is leaving for a new assignment. Next
week, Dave Pettit, deputy managing editor of WSJ.com, joins Susan
Pulliam on the column. To contact Rebecca Buckman and Susan
Pulliam, write: The Internet Trader, The Wall Street Journal Sunday,
200 Liberty Street, New York, New York 10281. Email:
online.investing@wsj.com |
