Clearly by my last post I am gone, FYI: "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."
Write to Ruth Simon at ruth.simon@wsj.com and E.S. Browning at
jim.browning@wsj.com |
