Hey Les
Take a look at MDRE/OTC
Don't trade it
Keep some free shares
Wizards of odds
BY Andrew Wahl
August 28, 1998.
For thousands of Canadians,
stock market day trading is
irresistible--and for some, it's a
pretty good living
Les Dzbik thinks the big play this year is in
diamonds. He should know--speculating on
junior mining companies, especially the penny
stock variety, is how he makes his living these
days. Dzbik watches for company press
releases, recommendations from newsletter writers, high trading volume, rumors on
Internet chat sites--anything that might be a sign a stock is beginning to spurt
upwards. Once he spots a likely target, he pounces, placing an order for 10,000
shares, maybe more. If the stock gains only 10› or 20› a share, he sells
immediately and pockets a couple of thousand dollars. It's not a bad day's work,
especially for a 40-year-old who describes himself as an "out-of-shape,
chain-smoking, wine-loving, ordinary guy" who emigrated penniless from Poland in
1978 and drove a city bus for 16 years.
Dzbik's command centre is a second-floor office in his middle-class Winnipeg home.
His tools are a television tuned into CNBC, a fax machine, a telephone headset to
keep his hands free, a 150 Mkb computer with a 17-inch monitor and
$22-per-month unlimited Internet access. At any one time, he could have as much
as $200,000 of his own money in the market and, over the course of the year, he
will probably pay $18,000 or so in commissions to discount brokerages. His own
payback? Dzbik says he is making considerably more than the $35,000 salary he
earned driving buses. "This is where the money is, if you have the nerves for it," he
says. "Some people collect stamps, some people collect women; I like the stock
market. It's just a hobby. I don't look at myself as some big-shot successful guy. I'm
just a little, humble Polish man."
Dzbik may be a bit too modest. He is typical of a new breed of investor who uses
the Internet, computer technology and discount brokerages to seize direct control of
his or her investing destiny. On one level, this explosion of interest in business and
balance sheets is a good thing. After all, many small investors have done well in the
market, and their presence is a useful reminder that you don't have to be a
megabucks mutual fund manager to be an astute judge of corporate value.
Yet some aspects of the recent surge in do-it-yourself investing are giving
experienced observers the shivers. In many cases, everyday folk are plunging
headfirst into the markets and expecting to beat the pros at their own game. While
traditional wisdom has always advised people to hold stocks for the long term, the
manic frontier of today's investing boom is populated by those who plan to hold
stocks for only a couple of hours, or even a couple of minutes. These "day traders"
are quick-hit speculators who turn the stock market into something that looks
remarkably like an electronic casino.
Most experts are convinced that day traders are engaged in a mug's game. Burton
Malkiel, an economist at Princeton University and author of the investment classic, A
Random Walk Down Wall Street, believes the odds inevitably catch up to most
speculators. "When you look at day traders," he says, "they generally have holes
in their shoes."
But similar warnings haven't put off the growing crowd of people who believe they
can make a good living by playing the market. In the US, some traders are claiming
they earn up to US$2 million a year by playing the spreads between bid and ask
prices on the Nasdaq stock exchange. Others are reaping stratospheric returns by
riding momentum swings in high-tech stocks. What all of these traders have in
common is the belief that technology has fundamentally changed the nature of
investing and leveled the playing field between amateurs and pros.
The zealots have some evidence on their side. The rise of the Internet and the
appearance of cheap discount brokerages have empowered small investors. Only
a decade ago, most investors had to go through a retail broker to obtain research
on a company, then they had to pay stiff brokerage fees to buy or sell a stock. Now
you merely have to tap your computer keyboard to plug into vast quantities of
market data, corporate financial statements, industry analysis and speculation. Much
of this information is free. And once you've decided what stock you want to buy, you
can place an electronic order with a discount brokerage and pay only a few dollars
to rejig your entire portfolio.
The end result is that it is now possible to spend your days at home, dressed in
pajamas, fully plugged into the financial markets. While other people slog away at
humdrum jobs, you can attempt to outwit Bay Street and make a fortune. But is this
really the road to riches or just a good way to get steamrollered when the market
takes its inevitable downturn?
Dzbik says it is a beautiful feeling, watching the exodus of his work-bound neighbors
while the morning light streams through his office windows. He rises at 4:30 a.m. as
The Globe and Mail arrives at his doorstep. Two hours later, he reads The
Financial Post's Web site, scans investment newsletters, then searches for tips and
rumors on Silicon Investor and Stockhouse, two popular Internet chat sites for small
investors. At 7:30 a.m., he rouses his six-year-old daughter and delivers her to
school in time to return and log into Canada Stockwatch's feed from the Vancouver
and Alberta stock exchanges when those markets open at 8:30 a.m.
IN FOR A PENNY...Day trading is "where the money is," says
former bus driver Les Dzbik, "if you have the nerves for it."
For the rest of the day, he searches for undervalued stocks on the Internet, looks at
company charts and watches for high trading volume. Some days he'll make three
or four trades, others none, and some stocks he will sell within the hour for a tidy
profit. Should a stock begin to slide, he cuts his losses as soon as the price has
dipped 20% and looks for something else.
He closely follows about 30 companies, and he has favorites that he'll buy and hold
in anticipation of a big find, such as Winspear, a Vancouver Stock Exchange
diamond company that he's been in and out of frequently over the past three years.
Late in June, with Dzbik holding close to $40,000 in the stock, Winspear announced
promising returns from its Snap Lake project area, 87 kilometres northeast of
Yellowknife, and the stock jumped to $2.04 from 43›. As the stock rose, Dzbik
steadily sold off his holdings. "There was talk on Silicon Investor that it would hit $3
or $5 or maybe $20," says Dzbik. "Well, maybe, but if I can cash in my profit right
now when the stock made me 300%, I still made a hell of a lot of money. Do I care if
they find diamonds? No, because I've made money."
Dzbik began day trading five years ago as a way to kill the six hours between his
morning and afternoon driving shifts. Back then, the Bre-X and Voisey Bay
discoveries were making every junior mining stock a hot pick, and he became a
faithful reader of Bob Bishop's Gold Mining Stock Report newsletter and John
Kaiser's bi-monthly resource newsletter, Kaiser Bottom-Fishing Report. Dzbik
noticed that any stock those newsletters recommended leapt for the heavens, so he
began phoning his discount broker and buying shares in blocks of as little as 5,000
or as many as 40,000, looking for just a 10›-per-share gain before liquidating his
position. In 1996, when health problems forced him out from behind the wheel, he
began devoting more attention to the stock market and decided in 1997 never to
drive another bus.
In the post-Bre-X era, with junior mining stocks in the dumpster, Dzbik is turning his
attention to playing options on the Toronto Stock Exchange. He says the past six
months have been "lousy" with only a 40% return on his investments, compared
with almost 300% a couple of years ago. But he has no plans to go back to his
former life. "I always wanted to semi-retire when I was 40. I don't think I'm ever
going to go back to any job full-time," he says. "I can honestly say I don't like
dealing with people that much. I had enough in 16 years driving a bus."
Princeton, NJ, an affluent college town an hour outside Manhattan, seems to be a
world away from Dzbik's Southdale neighborhood in Winnipeg, so perhaps it's no
surprise that economist Malkiel takes a very different view of the stock market than
the retired bus driver. He has earned both academic and popular renown for his
investment research, and he believes that no one can consistently outwit the market.
Malkiel argues that the market is highly efficient at distributing and assessing
information about companies. Think for a moment about the thousands of highly paid
money managers and investment analysts who follow the ups and downs of publicly
traded companies. The moment they get a scrap of news about any matter that
might affect one of their investments, they buy or sell. Consequently, stock prices
tend to reflect an expert assessment of all the available information about any
publicly traded firm, and any movement of stock prices up or down tends to be
entirely random and unpredictable.
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