By the read of the enclose WSJ article, we may be ruining ourselves by hanging around Silicon Investor (one mention mid-section). I had thought I was a crazy glaze eyed speculator, but now I realize I am a coupon clipper when compared to the brave souls described in the article. To approach them, I need to get margin indebted to estimated 200% NAV, and to trade by the hour in front of CNBC and CNN shows, and not give my clients 100% effort at my regular business. Come to think of it, back in November-December-January, minus the margin debt, above is a fitting description.
My 70 year old mom and her sister's favorite TV channel is CNBC (more colourful and exciting than Bloomberg) and buys NOK and LU on the dip. For every dollar of stock my mom buys in her account, I sell a 100 cents in her account managed by me, and that account is nearly 100% cash now. My absent minded trading buddy goes on holiday with mistress, but leaves phone recorder message "I am on holiday for a few days" while his wife is on home leave in the US, while allowing mobile phone to roam to Thailand, often answered with a Thai language operator message (presumable about phone out of range temporarily). Happy holidays. My serial entreprenure friend, two months away from IPO, just decided to do venture capital after IPO and exit (6 months after that). Boring Jay stays home and sits on a pot of cash, on the lookout for the blindside that never seems to hit spot on.
Implication ... lots of people will get very very hurt when the unforeseen happen, when either the music stops, the chairs get taken away, the hall gets burned down, or the virus laden mosquitos join the party. The feeling is not right.
QUOTE
Some Online Investors Can't Seem
To Say No to Playing the Market
By RUTH SIMON and E.S. BROWNING
Staff Reporters of THE WALL STREET JOURNAL
David Gleitman shivered as he tucked his nine-year-old son into bed on April 14. Over the past year, soaring stock prices had made him a millionaire -- at least on paper. But now, Dr. Gleitman, who had borrowed $700,000 or more to load up on stocks, was in over his head.
The market was plunging, and over the past month he had been forced to cover mounting losses on his margin trades, the deals he'd made with borrowed money. These margin calls, combined with the steep sell-off, had erased roughly $1 million, or close to 80%, of his portfolio's value.
"The feeling in my heart was, 'Here it was my watch, and I'd taken a tremendous hit,' " Dr. Gleitman recalls. He was chastened by the thought But not enough to call it quits. Despite his losses, the 46-year-old podiatrist was back to trading within a matter of days. With his earnings from his medical practice shriveling, Dr. Gleitman depends on his trading income to pay the bills -- household expenses, taxes and school tuitions, for example. He has gradually reduced the hours he sets aside to see patients so he can spend part of most mornings trading. His nights? They're spent researching stocks and cruising online chat rooms for investing tips.
Just three months after margin debt fueled his portfolio's collapse, Dr. Gleitman is once again borrowing heavily to boost his returns on the 15 or so stocks he trades. So far, it has paid off: his portfolio is back to about half its peak value of around $1.3 million, after subtracting debt owed to his broker. But, "I'm pretty much pushing it to the limit," he concedes.
For many Americans, online trading has gone from a novelty to a fixation in the space of just a few years. In homes and offices everywhere, it's helped turn the personal computer into a round-the-clock casino, letting people who wouldn't otherwise think of themselves as gamblers plunge into endless hours of high-risk speculation. Fast Internet connections, low-cost brokerage services and the long bull market have all inspired more investors to become heavy traders -- and for some of them, even when trouble ensues, it is hard to stop.
'Trading Is Addictive'
Paula Stringham, a 36-year-old stay-at-home mom in San Antonio, had to ask her husband for $2,900 to meet margin calls this spring after her brokerage account lost 20% of its value. "Trading is addictive. There is no doubt in my mind that if I had to quit altogether, it would be very difficult," she says. After she and her husband had a heart-to-heart chat, Ms. Stringham agreed to scale back her trading, but that strategy hasn't been profitable either. "I wish I could go back to 1999 ... and never day-trade and never get myself into this mess," she adds.
Christopher Rugowski, a 23-year-old Rochester, Minn., Web-site designer, says he had to stop following the stock market while he was in college because it nearly cost him his degree. "It was tough to go to class when the market was open," he says. Now he trades options on the side and sometimes thinks about trading full time. At his office, he uses his computer to stay plugged into the market. The first thing he does when he gets out of bed on weekdays is to tune in business-news channel CNBC. "I have it going on two TVs in the morning. I crank it up so I can hear it while I'm taking a shower or cooking breakfast."
Setting out on his 45-minute commute from his Oceanside, N.Y., home one recent morning, Dr. Gleitman, the podiatrist, turns on his cell phone, hooks on an earpiece and places a Palm IIIx organizer by his side. Though he doesn't trade every day, his account is active enough that his broker, Charles Schwab Corp., offered him the chance to test the Palm to trade stocks and get price quotes. But the Palm isn't fast enough for Dr. Gleitman, and it is hard to use while he drives his Acura. So Dr. Gleitman maintains a second brokerage account, with Citibank, to get instant stock quotes over his cell phone.
"The worst part of the morning is going in for the drive," he complains. "I'm in a void."
When he arrives at his storefront office in Brooklyn's working-class Flatbush neighborhood, Dr. Gleitman enters a cramped room where he used to do surgery. He quickly boots up the laptop computer that contains patient records and his trading account, filled with stocks such as Broadcom Corp., Rambus Inc. and JDS Uniphase Corp.
Dr. Gleitman sifts through the mail and shrugs as he opens a mailgram from Schwab. It's a margin call, which Schwab had alerted him to by phone the previous day. Since then, however, stocks have climbed, so he no longer needs to put up more cash or sell stock to bring his debt down to within Schwab's limits. "I try to ride calls to the last minute," he says. But he wasn't always so sanguine. "The first time around, I got really freaked out," he recalls.
His first patient of the day is an elderly woman who needs her toenails clipped. Before he begins, she complains about having to make a $10 co-payment on her last visit. These days, insurers reimburse podiatrists $800 for surgeries that once commanded $4,000, Dr. Gleitman says, and they provide far less money than they used to for routine care. Dr. Gleitman says that in the late 1980s, he earned around $200,000 a year from his practice; now, because of the reduced reimbursements, as well as the long hours Dr. Gleitman currently devotes to trading, the practice brings in less than a quarter of that sum.
His task done, Dr. Gleitman scurries back across the hall to his laptop. He flips back and forth between two screens. One tracks investor sentiment and the Nasdaq market, minute-by-minute. The second flickers as it constantly updates prices for the stocks in his portfolio. Nearby, a two-inch hole he punched in the wall with his fist is a reminder of a frustrating day when his computer froze repeatedly as his stocks sank.
Switching over to his medical files, Dr. Gleitman makes an entry in the patient's record. Then he flips back to the stock market. He normally waits to update patient charts until the market closes.
Reflecting on his stock-trading routine, he says: "Can I give up on it, if I had to? Yes. To me, I'm using it as a specific tool." It's not like he's using an off-track betting shop to supplement his income, he says. Of course, there's no avoiding the risks. Dr. Gleitman received about five margin calls in less than two months when the market soured this past spring. One was for more than $200,000.
After the market's collapse, he cut back on his borrowing. Now, it has edged back up again. On a recent day, Dr. Gleitman looks at his pager and sees that Richard Kappler, a Schwab customer-service representative, is trying to reach him about a margin call. "It's the angel of death calling," the podiatrist says. Returning the call, he assures Mr. Kappler that he's on top of the situation.
Dr. Gleitman says he hardly ever plays lotto, and recalls only one visit to a racetrack. Nor has he invested all of his savings in trading; he says his house is paid off and he has "maybe $200,000" set aside in separate accounts to help pay for his retirement and his three children's college education. But he recently read a book, "Trading for a Living," that was written by a psychiatrist who also is a trader. "There are incredible parallels" between trading and gambling, Dr. Gleitman says. "All the thrills are there when you make the right trade. There is absolutely no difference."
Dr. Gleitman bought his first stock while still in high school, with $500 saved from a summer job. Later, he funneled larger sums into low-priced penny stocks talked up by brokers he had never met. Those investments almost never turned a profit. Eventually he decided he might do better on his own. He opened a brokerage account at Citibank in early 1997. A few months later, he switched to Schwab because it offered lower commissions. Instead of searching for hot, young companies that could be the next Microsoft or Intel, Dr. Gleitman started buying well-known stocks, such as Dell Computer Corp.
A Losing Battle
That year, Dr. Gleitman for the first time made a net profit on his investments. But his romance with the stock market sometimes created tensions at home. His wife, Belisa, 44, was watching the Food Network one afternoon in October 1998 when stock prices began to tumble. Her husband grabbed the channel changer and switched to CNBC. Back and forth, the two battled for control. Food Network. CNBC. Food Network. CNBC.
Dr. Gleitman lost the battle. A short time later, he set up an office in a dim corner of the basement of his Long Island home. Next to his desk, by the treadmill, a small TV set Gradually, Dr. Gleitman pushed back his first appointments to 11 a.m. from 9:30 or 10 a.m. to spend more time trading. He picked up investment tips in online chat rooms. In one, he learned how to make extra cash by using "call options" that gave other investors the right to buy stocks he already owned at a predetermined price. The first time he tried it, in November 1998, he sold calls on 9,000 shares of Dell Computer he already owned and made $27,000. He was hooked.
Cash Generator
The idea was to generate some cash he could use to pay his living expenses. He might give up some of the upside as a result, but if the stock was called away from him, he could always buy it back later. Sometimes he bought calls on stocks he didn't own. Then he began buying red-hot technology issues.
His wife was skeptical when her husband first announced that he wanted to spend more time trading and less time practicing medicine. Even now, she maintains her own six-figure emergency fund, money Ms. Gleitman, who left the insurance industry to raise her family, earned in former jobs. Dr. Gleitman says it took him months of profitable trading to show her his efforts could pay off.
The initial $200,000 he funneled into his online account over the course of 1997 had doubled by year end. By mid-1998, it had tripled. Then it grew more.
A $300,000 Fantasy
Years before, Dr. Gleitman, who dreamed of renovating his split-level home, had built a scale model of his $300,000 fantasy. As his portfolio grew, that dream seemed within his grasp. By early this past spring, the value of his portfolio had swelled to about $1.3 million. He thought about giving up medicine entirely.
Then, disaster. Dr. Gleitman was flying to West Palm Beach, Fla., for a family vacation on Friday, April 14, when the Nasdaq market plunged a record 355.49 points, or 9.7%. His portfolio shrank more than $100,000 in a single day. "I got myself some medication" for high blood pressure, he says. Later that evening, he put his children to bed and, as the sun was rising, traded strategies and consoling words with fellow investors he knew from the Silicon Investor Web site.
His wife? "She basically kept quiet," he says.
The following Monday, he studied the market, looking for some sort of turnaround. As the week progressed, he began trying to gain more leverage by buying options. Short on cash, he spent $5,500 on options giving him the right to buy the beaten-down shares of Myriad Genetics Inc. Two months later, he closed out the position with nearly a $40,000 gain.
Second-Guessing
One recent day, as he hovers over the computer in his office, Dr. Gleitman second-guesses a trade he made before setting off on his morning commute. A few weeks earlier, he had sold calls on 1,200 shares of Broadcom Corp. he already owned, giving another investor the right to buy his stock at $250 a share. The deal netted Dr. Gleitman a quick $5,000 or so. But just a few days before the calls were set to expire, Broadcom was trading at $258. It looked like Dr. Gleitman would have to give up his Broadcom shares at $250, forgoing the $8 run-up in their price.
Haunted by a previous trade in which he sacrificed a big payoff by selling options on a stock that subsequently rallied, Dr. Gleitman had bought back his Broadcom calls that morning and sold another set that would allow him to hang on to his stock unless Broadcom hit $260 or more before the week was over. The trade cost him $7,500. By early afternoon, Broadcom had sunk to $250.
"I should have just kept" the call, he says. "Whatever I do, the opposite will work."
By the time the week ends, Broadcom has dipped just below $230. By rolling over his calls twice more, Dr. Gleitman has cut his loss on the trade to about $2,500. "It comes and it goes, but it also comes again," he says. "It's part of the American dream."
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