*** Internut Article from Omaha World Herald 3/28/99 ***
Technology Aids New, Bold Breed of Web Traders
When Dave Kotinek bought a house in Omaha in June 1997, he worried about paying for it over 30 years.
Technology allows an inceasing number of day traders, such as Dave Kotinek of Omaha, to conduct trading on his home computer.
Last week, using part of the profits from one year of trading stocks on the Internet, he paid off the $85,000 mortgage.
Kotinek, 40, said he is up 2,300 percent on his money since he started buying and selling stocks through online broker Ameritrade about a year ago. He has doubled his money in the past three weeks alone.
By night, he sings and plays guitar in a top 40 dance band called Hat Trick. By day, he's glued to his computer screen. Kotinek trades stocks from a converted bedroom in his two-bedroom house near 72nd and Blondo Streets. Using a satellite dish, a telephone and a high-speed cable Internet hookup, he makes an average of 20 stock trades a day.
"The cool thing is, being in America, everybody can have a piece of this in your house," Kotinek says. "It's a huge river of money and everybody's got a net. If you're smart, persistent and tenacious, you're going to probably do OK."
Kotinek is one of a growing breed of investors known as day traders. Empowered with technology that gives them timely access to the markets and information, day traders make investment trades every day - often many times a day.
The Internet has given individual investors like Kotinek access to tools that once were available only to stockbrokers. Bypassing traditional brokers, these investors make their own decisions, do their own research and stay in constant touch with one another through Internet chat rooms. Although day traders existed before the Internet, the increasing popularity of online investing has brought more of them into the market.
Day traders are the most active among the growing number of investors online. Online trades accounted for 13.7 percent of all stock trades in U.S. markets in the fourth quarter of 1998, compared with 7.2 percent during the first quarter of 1997. The number of online brokerage accounts is expected to top 10 million by the end of the year, according to the U.S. Securities and Exchange Commission.
The SEC and other securities regulators have expressed concern that many new online investors don't realize the risks of the stock market. Kotinek says he does. After some early struggles when he began investing in stocks 18 months ago, he says, he's become more and more successful with experience.
"I have huge days," he says, recalling the time he racked up a gain of $55,000 in a single day's trading. He's had big down days, too, losing as much as $20,000. But the general trend has been up. Way up.
His investment success has exceeded his own expectations. He says it's a high-risk venture that isn't for everyone. But it's been paying off big for him.
"I'm a high-risk investor and I can afford to be," he said. "I'm a single guy. I don't have a lot of responsibilities. . . . If you've got a family and are trying to make ends meet, it's probably not a good idea."
To get a glimpse of a day trader's life, a World-Herald reporter spent a trading day with Kotinek.
Over 61/2 hours, Kotinek rarely moved from his chair as he flipped through World Wide Web sites, scouting for information and keeping an eye on his stocks. He made 10 stock trades and considered a half dozen others. He shared his views on how the market works and showed how Internet investors gather and share information.
Let's join Kotinek, then, on that trading day, March 4. We'll watch as he plays his frenetic game, casting his net to try to snag some of that cash.
* * *
8:15 a.m. It's 15 minutes before the opening bell on Wall Street, and Kotinek is wired into the action. In faded bluejeans and untucked plaid shirt, he peers into his computer screen, his window on the stock market. He's ready to match wits with unseen suits in brokerage offices and online investors like him.
"Looks like it's going to be a good day," he says with anticipation. "The S&P futures are up 3. If the futures are up, you're going to have a strong opening."
8:26 a.m. Four minutes to the opening of trading. Kotinek and his technology are ready. A satellite dish on the roof brings him up-to-the-minute stock quotes through Data Transmission Network, an Omaha company. He trades through a brokerage account on the Internet with Ameritrade, another Omaha firm. He uses a high-speed Cox@Home cable Internet hookup.
CNBC, the cable stock-market channel, appears on his computer screen in a 2-inch square box in the upper right corner. The rest of the screen displays price and trading information on various stocks. Mostly, Kotinek buys and sells shares of Internet-related companies. Their stock prices often move sharply, creating opportunities for quick profit.
He watches about 30 stocks, but concentrates on about 10 that he's been tracking for months. "They're the ones I have a good feel for and where they ought to be valued," he says.
This morning, he's interested in buying shares of Digital River, a Minnesota company that helps other companies sell products over the Internet. He's made money on the stock in the past.
"I got on him (bought the stock) at about $5 (per share)," he said. "Went clear up to $60."
Since then, it's taken a dive to $31 a share. Kotinek says there is no good reason for the dip. He expects a rebound. He clicks his computer's mouse and pulls up a graph of the stock price over the past few months. "He's sitting well below the 50-day moving average," Kotinek says. "I'm going to load up on him."
Kotinek's looking to unload much of his 32,000 shares of Cozmoz.com, a California-based company that wants to buy and develop Internet businesses. Kotinek is sitting on a hefty profit on the stock, but is worried the price might plunge and wipe out much of the gain.
He clicks to an Internet message board where traders post news and gossip about Digital River. One investor says the stock will move from $31 to $35 a share today. Another warns, "$25 by Friday."
Kotinek says traders use the message boards to try to influence other investors. Some traders own the stock and want it to go up, while others have taken "short" positions that will give them a profit if the stock goes down.
Kotinek says he finds good tips here, but he classifies much of the chatter as "spam" - computer slang for junk e-mail. Still, it's one of the tools that help him spot winning stocks.
"There's no way you could be doing this without the Internet," he said. "You can see what the actual shareholders are talking about. There are all kinds of Web sites to teach you things."
Kotinek is ready to make some trades when the market opens. He calls Ameritrade and places orders to sell 10,000 shares of Cozmoz.com - half at $1.871/2 a share and half at $1.811/4.
8:30 a.m. CNBC shows that officials of the New York Stock Exchange are pounding the gavel to start trading. The game is on.
"Here we go," Kotinek says.
Some of the numbers on Kotinek's screen began to flash red, indicating a change in stock prices.
"I'm going to watch CMGI," he says, referring to CMGI Inc., a Massachusetts company that helps develop Internet businesses. "I may pick up another 100 (shares) there."
8:39 a.m. Kotinek is concerned. The price of a stock he owns, New Jersey-based bagel franchiser All-American Food Group, is going down. Since opening at 18 cents a share, it has slumped to 15. "I don't like the health of that thing," he said. "Let's chuck that thing. Whatever I sell will be profit."
He calls his broker. "Sell the rest of it at the bid price," he says. "Get me out of there. They're chucking the heck out of it."
He also places an order to sell 3,000 shares of Cozmoz.com at the market price. His orders to sell an additional 10,000 shares remain active, but the stock is trading below the price he wants.
The Dow Jones industrial average, the stock market's most widely watched barometer, is up 111 points in an early-morning surge. Kotinek says that should boost investors' confidence in stocks in general.
He doesn't put much faith in market predictions by the parade of analysts that appear on CNBC, though.
"One guy says 'Dow 10,000 by the end of March,' Then a big analyst says we're in for a major correction. It's stupid."
Kotinek calls up Ameritrade's Web site to check on his account. It shows he sold the 3,000 shares of Cozmoz at $1.78 a share.
His account also shows he sold 15,000 shares of All-American Food Group at 15 cents.
It has since moved up to 20 cents.
"That's OK," he says. "I made money on it. I'll take that."
9:02 a.m. Kotinek still wishes he hadn't missed the upward move on All-American. He's thinking of buying back in and hoping to ride it up. It's now trading at 17 cents.
He calls Ameritrade and places an order to buy 15,000 shares at 17 cents. He hopes to sell at 19 cents and pocket $300. "Chances are that's going to happen," he says.
9:10 a.m. Two things are not going well. For one, no one has bought his other Cozmoz shares. For another, All-American's stock isn't moving up.
Few buyers are interested in Cozmoz today. Only 19,000 shares have traded in 40 minutes. "How am I supposed to chuck shares when that's going on?" he says.
9:21 a.m. All-American is still sitting at about 17 cents a share. Kotinek, worried that he may lose again if the stock goes down, calls Ameritrade. "I better just chuck him and be safe," he says. He changes his sell order, lowering the price from 19 cents to 17 cents.
He also tells his broker to sell 35,000 shares of Interactive Processing, a Las Vegas-based company that operates an "online convention center." The stock sells for 3 cents a share.
Kotinek says he and many other online traders like to buy such "penny stocks" - those costing less than $1 a share in most cases. Their prices can move rapidly and they hold huge potential for gain. If a penny stock begins to move, it can attract lots of buyers in a hurry.
"It can go from 2 cents to 50 cents," he says.
Kotinek is still trying to sell hisAll-American stake. He lowers his price to 16 cents.
"The Dow's up hard today," he says. "I'm surprised these Internet stocks aren't really screaming. Nothing's moving much."
9:30. a.m. All-American's price begins to weaken again. "It looks like he's selling off," Kotinek says. "I better just chuck it."
He calls Ameritrade and orders a sale at whatever the market will pay. He fills the order at 14.8 cents a share. "Glad I got off that dog," he says. Five minutes later, he tells Ameritrade to sell off an additional 4,000 shares of Cozmoz at the market price.
Kotinek constantly watches as trades are reported on his computer. He watches for increases in trading volume, a sign that a stock may begin to move in price. And he continually calls up a software tool called DTN Chameleon. It displays and constantly updates a stock's price moves on a line graph, giving him a changing visual picture.
Kotinek said he doesn't see much action in the penny stocks today. "They'll get hot again," he says. "That's the beauty of online trading. There's more and more ignorant traders out there that will buy high."
Kotinek says those novice traders will be OK if they can accept early losses and learn fast.
He said he "got whipped" for six months in the market before he began to do well. "You have to be rational," he says. "You have to look at what you can do differently next time.
"You've got to realize that the best you can do is gain more than you lose. It's hard for a person to deal with the fact that he lost. You learn to deal with that as a byproduct of what you're doing. Your losses are your scrap."
9:39 a.m. Kotinek gets a call from his friend, Doug, a fellow online trader who lives in Omaha. Doug wants Kotinek's opinion on a stock, Bluefly Inc., an online designer outlet store based in New York City.
Kotinek calls up a one-year graph of the stock price. "I don't think it's going to tank on you," he says. "Its 50-day moving average is about where you're at."
Kotinek checks recent news stories and sees that Bluefly announced an agreement with Excite, a major Internet search navigation service.
"I think if you're looking to hold it, it's probably a decent hold," he says.
Kotinek's Ameritrade account shows he sold an additional 4,000 shares of Cozmoz.com at $1.78. "I feel good being lighter on him," he said.
It's nearly 10 a.m. and he hasn't left his chair. He acknowledges that day trading requires a lot of his time and has affected his health. He's still playing in the band four nights a week, going to bed at 2:30 a.m. and then getting up at 7:30 to prepare for the day's trading. That's not as much sleep as he'd like, and he misses the slower pace of his life before day trading.
"Day trading's not something you can do a couple days a week," he says. "You have to be inside of it and get a feel for where these stocks are going."
He said he thinks about taking his gains and stepping away from day trading for a while to "get my life back." But he's making too much money now, and he enjoys the game.
He got into it, he says, because he realized he needed to do some investing.
"It wasn't but a year and a half ago that I had no idea what these numbers meant. I'd never been in the stock market," he said. "I bought this house, and I thought, 'I've got to do a lot of playing in the band to pay for this.' I mean, am I going to be playing when I'm 70? I don't think so."
While it's hectic and stressful to trade stocks all day, he said, the lifestyle has its advantages.
"You get up in the morning and you don't have to fight the traffic. You go to your computer. You don't have to get dressed up. You don't have to take a shower. You don't have anybody breathing over your shoulder."
10:15 a.m. It isn't one of his more active trading days, but he's feeling good about what he sees on his screen. His white tom cat, Capper, sits contentedly on his lap as Kotinek watches the numbers change.
"I'm doing good today," he says. "I'm making money."
He's excited about CMGI, which is trading in the low $140s a share. "They're powerful," he says of the company. "I wouldn't be surprised if CMGI could go up 1,000 percent in a year."
He's not looking forward to filing his taxes. He'll have to provide a record of all his buying and selling to track his capital gains for the Internal Revenue Service.
"It's going to be a book," he said.
His accountant told him taxes might amount to 45 percent of his gains this year. He says that doesn't bother him. "I'm glad to have good roads and schools and the military. I'm proud to be an American."
10:25 a.m. Kotinek sees that some relatively big blocks of Digital River stock have changed hands - one of 10,000 shares, another of 15,000.
"There's big people buying," he said. "I think we saw the bottom (price). I think it's going to walk back up."
He calls Ameritrade and buys 200 shares at $32.561/4 a share.
The Dow Jones industrial average is up 156 points - a big move. He listens to an analyst on CNBC giving his view on the reason why.
"So now the big boys are saying the Dow's going up because it's oversold," Kotinek says, smirking. "Why didn't they say that yesterday? It's stupid. Yesterday they said it was going to crash because it was overvalued."
10:40 a.m. CMGI's shares dip below $140. "I said I was going to buy, but now, I don't want to," he said. "There's just a flurry of sales right now."
Over the next hour, Kotinek chats with Doug, checks out a few stocks and the message boards, but doesn't trade.
He tells about the time his computer crashed. Not wishing to miss a day's trading, he went to CompUSA, bought a new one and had his new system running the next day.
Kotinek, a native of Superior, Neb., attended Kearney State College (now the University of Nebraska at Kearney) and Hastings College, but didn't graduate, turning his attention to music.
He attended technical school in Hastings to learn to fix his music equipment. It pays off now in helping him keep his computers running.
While some critics of the online investing craze have equated the new traders with gamblers, Kotinek rejects that characterization, at least of him.
"I have no desire to go into a casino and pull a handle on a slot machine," he said. "I don't equate this with that. I think you can do it intelligently, do it with knowledge and an understanding of what your risks are."
12:15 p.m. Kotinek's interest perks up in Starnet Communications, a Canadian company that offers gambling on the Internet. The company has issued a press release touting its new sports book and casino. And Starnet will be an exhibitor at an expo for financial analysts later in the week.
Buyers are hitting the stock. The price is moving up. Kotinek calls Ameritrade and buys 500 shares at $4.50 a share.
"It's a safe little bet," he says, adding that he now owns 6,000 shares of Starnet.
1:30 p.m. The Dow Jones industrial average begins to pare some of its gains. It's still up 81 points. The Nasdaq composite index, heavy with technology companies, is down 13. Digital River has pulled back to $30.50.
Kotinek types in an order to buy 100 shares. While he has the option of trading via the Internet or phoning in an order, he usually uses the phone because it's faster, he says.
2 p.m. "I'd feel better if I could sell some of my Cozmo," he said.
A few minutes later, a buyer surfaces for his Cozmoz.com shares. Kotinek sells 5,000 shares at $1.78.
"All right. I'm down to 20,000 shares now. I'm glad I'm lightening up on that stupid thing."
3 p.m. The market closes for the day. Kotinek says he finished the day "fairly flat. I might have made a little gain. Today I feel I made good position. I got a lot of shares out of a company I wasn't feeling good about and I bought some shares of a company I thought were on sale. Overall, I feel pretty good."
* * *
Over the next three weeks, some of Kotinek's stocks soared and his Ameritrade account doubled in value. CMGI rose from the $140s to $226. Digital River climbed from the low $30s to $42. Starnet ran from $4.50 to $17.
With his Ameritrade account value at a new peak, Kotinek decided to take some money out of the game. He wrote Commercial Federal Bank an $85,000 check for his mortgage. While he was a little reluctant to spend money that he might have used to build more in the stock market, he said, it felt good to pay the debt that originally motivated him to start investing.
"It's just paper gains unless you do something with the money," he said.
Personal Comment:
I am relieved to see that this gentleman paid off his mortgage. I also believe that his last 1.5 yrs experience could be the worst thing that happened to him in terms of investing over the course of his lifetime.
I know a couple people like him, who haven't paid off the mortgage BTW, who think Mr. Market is always like the past 1.5 years with the internut stocks. I think they may be in for a surprise over the next 25 to 30 years.
There will always be opportunity to create wealth with Mr. Market but will we see the AOL's, CMGI's, et al going up 500% to 1000% in a year every year.
With this said, I still believe the internut bubble is NOT anywhere near being over. Sometimes the tide takes awhile to go out. That's when we will see who is swimming naked. |
