Meet Gail Dudack...Clown Killah (nice quote from Glenn Rudolph at the end of the article, too)!
usnews.com
Business & Technology 11/20/00
The craze collapses
Investors battered by the market aren't trading much now
By Paul Sloan
Nothing, it seemed, could stop Richard Burger from making money. He would fire up his computer first thing in the morning, flick on the TV to business channel CNBC, scan Internet chat rooms, and, with a click here and there, start trading stocks. Just about everything went up, so Burger kept on trading. His portfolio, packed with Internet stocks, swelled from $20,000 to $60,000 in a few months. The technology crash last spring? Burger figured it was another buying opportunity. Today, the 46-year-old from Phoenix owes the brokerage E*Trade $35,000. He hopes the handful of stocks he still holds rebound, so his losses aren't "too full of pain and anguish." But he has sworn off speculating. "No more buying on tips, rumors, and newsletters," Burger promises.
Could America's obsession with the stock market be ending? The bull market of the late 1990s, coupled with the rise of the Internet, lured millions of neophyte investors to the stock market. Online brokerages sprouted up, commissions collapsed, and people began trading, sometimes furiously. Stories of quick riches were everywhere, often promoted by the brokerages themselves.
Don't look now. Now the neophytes are catching their breath. When the Nasdaq peaked in March, for example, Ameritrade was processing about 173,000 stock trades a day. By October, the number of trades had fallen 34 percent to 115,000–a remarkable decline given that the online brokerage has added 279,000 new customers. It's a similar story at Charles Schwab, E*Trade, and Datek Online. "A lot of people are still feeling pain, sitting on the sidelines," says Greg Smith, who follows the online brokerage industry for Chase H&Q. "It's hard to admit failure and sell some of these losers, so instead they turn the screens off and don't look."
The easy explanation for the drop-off in trading is that investors discovered the iron law of the stock market: It goes both ways. Since soaring to record levels in the spring, entire groups of technology stocks have tumbled 70 percent to 80 percent. On the Nasdaq, the average stock is about 45 percent off its high for the year, according to Ned Davis Research, a stock-analysis firm. Post-election confusion and a tech sell-off last week kept nervous investors off balance.
As investors have backed off, the buzz that fueled the mania has quieted too. Just last month, financial information company Bloomberg said it is scrapping the all-business format of its New York City radio station in favor of more general news. The growth of new investment clubs, after more than doubling to 35,000 between 1995 and 1999, has stalled. And CNBC's daily ratings, which spiked during the Nasdaq meltdown in April, slipped as trading slowed through the summer. (Ratings have rebounded since September.) CNBC fan Mark Maitz, owner of the Park Inn, a beer-and-shot tavern near Allentown, Pa., often changes channels when his customers arrive. "People are licking their wounds, and they don't want to talk about stocks anymore," he says. "It's back to sports, women, and who won the game."
Plenty of smitten investors stretched the speculative bubble to its limits, putting their lives on hold to run with the bulls and embrace Internet mania. Philip Wolfe, who dabbled in the stock market while in the Army, became hooked. He loved the community he found on America Online's investment message boards and chat rooms. And he loved how easy it was to make money.
So when Wolfe retired from the military in February, he set up his office in the spare bedroom of his home in Richmond Hill, Ga., a community south of Savannah where he lives with his wife and their son. Wolfe, 45, began buying stocks rapid fire. He gravitated toward the highfliers, joining the legions of do- it-yourself traders who created the momentum movement, when tech stocks soared just because. Last winter, Wolfe's portfolio of about a dozen stocks ballooned to $112,000, and he was in awe. "I'm not a big-dollar guy," Wolfe said. After all, he had started out with just $10,000.
Then came the spring. Wolfe, who retired as a sergeant major after 26 years, thought he knew all there was to know about self-discipline. But he found himself paralyzed. As tech stocks plummeted, Wolfe couldn't bring himself to sell. One day, his account dropped $25,000 by midday. His stomach knotted up. His computer froze. Wolfe shut down the computer and turned off the TV and found himself cutting the grass in the rain. "It just took me to the edge," he said.
Wolfe took the next month or so off, before coming back for more. Rather than sit on a few stocks, he became more of a trader: Holding stocks for just a few hours, he reasoned, would decrease the odds he would get stuck with losers. But too many stocks were falling. Finally, his account had tumbled below the $10,000 he had started with. "One day I said, 'You're being stupid,' " he says, and he called it quits. "So many of us got shellacked, we had to back off." Now Wolfe is sending out résumés and interviewing for management jobs.
With the advantage of hindsight, the market shakeout seemed inevitable. People were living too close to the edge, says prominent market strategist Gail Dudack, by borrowing money to buy stocks and blindly bidding up money-losing companies. She compares this year's stock market to "tough love," something that "hurts to do but is necessary." If nothing else, Dudack says, investors can now appreciate why Wall Street strategists recommend a diversified portfolio. The run-up wouldn't have been nearly as spectacular, but the pain wouldn't be so great now.
Some big days on Wall Street early this month did lure some investors back. But even if stocks resume their upward ride, no one sees a return to the blind bullishness that fueled the dizzying gains of 1999 and early 2000. The momentum-trading fad, for a while at least, has come to a halt.
The temptation of easy money, however, lingers. Glenn Rudolph is a regular contributor to the message boards on the financial Web site Silicon Investor. The jewelry store owner and investor from Meadville, Pa., says he has recently received a half-dozen frantic E-mails from investors looking for stock tips. Each tells a similar story: The people are in their late 20s and early 30s. They quit their jobs last year when their tech-loaded portfolios skyrocketed. They bought million-dollar homes and expensive cars. And they can't pay their bills. Rudolph's advice: "I told them," he says, "it's not illegal to work."
HO HO HO! And the thread lexicon enters the mainstream American vocabulary! |
