Markus, how about day trading as an option?
>>NEW YORK (Reuters) - Kevin Connellan, a stock trader with 30 years experience and head of trading at one of the largest U.S. money management firms, has some advice for individual investors: Don't try this at home.
It's the dream of many online investors to make it in Connellan's split-second trading world. But it could quickly turn into a nightmare without the professional tools he uses, the trading chief said.
``If you make a trade and you're not home when news breaks, you can't pull the trigger the other way,'' said Connellan, from the Chicago offices at fund manager Northern Trust Corp. (NTRS.O). ``Let's say there's a dentist, he buys a stock, pulls a tooth and it's down 50 percent. Leave the trading to the professionals.''
Tidal waves of rumors, earnings reports, political announcements and economic news slam the market each day, making stock prices soar or tumble in the space of minutes. That volatility, even more pronounced in a shaky economy, have made professional traders jittery, causing them to yank cash out of stocks in an instant.
And added to the flow of ``real'' news, like earnings announcements, are rumors, unconfirmed or made-up stories that affect prices, Connellan said.
For example, right after Merck & Co. (MRK.N) said on Tuesday it would spin off its pharmacy benefits management unit Merck-Medco as a public company, another trader called Connellan with a rumor Merck would use the cash to buy rival Schering-Plough Corp. (SGP.N).
``The ink wasn't even dry,'' said Connellan, as he spoke over the din of his huge trading room that process about 4,300 trades each day. ``People use every opportunity to put in a call for their favorite positions.''
Investors who can't watch the news constantly get burned, Connellan said.
``There is no such thing as 'I must buy now,''' he said, a hint of his native Dublin flavoring his speech. ``There will always be another opportunity around the corner. Use time-tested methods, such as earnings, the leadership of the company in its sector and sector valuations.''
Connellan himself invests in funds managed by his own company, Northern Trust. For these personal investments, he has allocated 40 percent in growth and value stocks, about 15 percent in mid-capitalization stocks and the rest in bonds. He invests in funds because buying specific stocks poses a conflict of interest and traders run the risk of watching their own stocks instead of concentrating on the firm's portfolio. he said.
DRUM STICKS, NOT ORDER SLIPS
Connellan's conservative investor profile belies his roots as a nomadic rocker. He arrived New York in the early 60's as leader and drummer of rock and jazz band K.C. and the Spenders. Between gigs at New York bars and New York's Catskills, the fledgling rock star worked as a booth clerk at a New York Stock Exchange specialist firm. He also honed concentration and strategy skills by playing in chess tournaments.
But before long, the thrill and adrenaline of Wall Street life captured his full attention. Connellan moved to Chicago to start a trading desk for now-defunct firm Drexel Burnham Lambert and never looked back.
``I loved it -- the thrill of the market,'' said Connellan. ''Events around the world could change things so dramatically.''
Connellan called on every skill cultivated in his past lives when anthrax scares pounded the United States in mid October, sending the technology-stock heavy Nasdaq composite index (.IXIC) down as much as three percent in during the day.
Trading volume soared by 40 percent as investors bought or sold depending on whether they believed widespread anthrax attacks would slam the U.S. economy. The floor's phones rang constantly as other traders and Northern Trust portfolio managers called to share information.
``It became one collective chat room with people just trying to get a handle on it,' said Connellan. ``We were stunned at events and stunned at prices we were seeing.''
The team made money for the firm, though, as they snapped up stocks that plunged, on a bet the shares' growth prospects far outweighed anthrax risks.
``The chess tempered me,'' said Connellan, who is now in his early 50s. ``I've always been calm when things go wrong -- I don't yell and break the machine. I look for that in my traders, too. If they're not in control, they can't make informed decisions.''
Friends and colleagues agree Connellan keeps his cool.
``I think he lost his temper maybe once or twice in the whole time I've known him,'' said James Taich, who worked with Connellan for 25 years at several investment firms, including Drexel Burnham Lambert.
NEW TRADERS, NEW FLOOR
Of course, with his patient outlook, Connellan admires investors like Berkshire Hathaway Inc.'s (BRKa.N) Warren Buffett, who use traditional, time-tested stock picking tools such as price-to-earnings ratios and takes long-term positions in stocks.
For his own stock-dealing operation, Connellan wants high-tech, state-of-the-art equipment. Plasma-screen televisions hang at each end of a T-shaped desk, and traders have at least four flat computer screens each from which to grab news and data. An Internet-protocol (IP) telephony system routs calls through a central computer network.
Connellan requires team members to have up-to-date experience as well. His traders, who hail from Sweden, India, Ireland and the United States, have advanced degrees in business or experience in trading stock derivatives like futures or options.
This is Connellan's first job on the so-called ``buyside.'' Buyside firms are pension funds and mutual fund managers. They are customers of the stocks, bonds and services that the ''sell-side'', such as Goldman Sachs & Co. (GS.N), underwrite and pitch.
Before joining Northern Trust, Connellan also set up a trading desk at Schroder & Co.
The former rocker has now passed on his drumsticks to his 18-year old son to take up golf clubs instead. He declined to reveal his golf handicap, saying the people with whom he plays might think he was exaggerating.
Friends and colleagues might disagree with Connellan about his golf game, but they say he is right on when it comes to working with fellow traders and family.
``He takes care of everyone and he's loyal to family and friends,'' said Taich, who has made Connellan godfather of one of his children. ``He's always there for clients and he always fights for them.''
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