Posted 4/16/99
So, you think you
wanna day-trade?
A sampling of day-trader
Web sites
Daytraders
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The Pristine Day Trader
Day trading clubs
Special Reports
Exposed! The naked truth about Net stocks
Face it: A big score will probably never happen to you. Or me. If everybody
has the same lightspeed information then nobody really has an edge.
By Scott Shuger
I just had the coolest chat at make-a-pile.net with this guy phattuesday.
Long story short: He knows this guy rebelyell who he's actually met once
who used to short time-shares but now day-trades Net stocks. Says he lives
over in the Marina, so he's doing alright.
Anyway, this guy -- rebelyell, not phattuesday
-- knows about this cool little company that's
going IPO in two weeks. As soon as I get the
concept out of my mouth you'll know it's the next
priceline.com (PCLN). OK, here goes: It's called
sock-market.com. What they do is they have
contracts with like all these laundromats all over
the country to service and clean all their machines. That's basically a break-even
business.
But here's the sweet thing: They get to keep all the socks they find! You ever come
back from a laundromat with all your socks? My point exactly. And what they do is
they wash the stuff -- most of it's already clean anyway -- and they sell it on the Net!
You go into a Foot Locker and you're talking about, say, $6 to $7 for a pair of socks.
And you have to go to the mall and park and yadda yadda. Here, it's two bucks and
a mouse click. And you can buy singles, man! Word is they're gonna follow up into
T-shirts and underpants. Go to their Web page and check it out. While you're there,
buy some socks. Anyway the train leaves the station in two weeks and I'm on it. It'll
probably be a monster for a coupla hours.
Yeah, sure.
None of the above is true, but I swear it's what 99% of discussions -- at parties, in
print -- about Internet day-trading sound like to me. Yes, I suppose some people have
quit their straight jobs, gotten a laptop and, after a few months of six-hour days, are
sitting on the mother lode. And maybe some of them have no downside exposure
because they've closed out all their positions and are just sitting in cash. But the
whole subject reminds me of what a comedian once said should be the subtitle of
every XXX-rated video: "Great Stuff That Will Never Happen to You."
You're probably not
fascinated by
day-trading. If you
were, you'd be
willing to study
charts and graphs
and resistance levels
and SEC filings and
annual reports day in
and day out for
years. Get real.
While a financial discussion with the likes of phattuesday can seem enticing,
I can't seem to have one without thinking of another financial discussion I
never want to have: The one where I explain to my kid who's just gotten into
Harvard that she's gonna have to go to Pensacola Junior College.
Now, I don't think I'm risk averse -- I got married, had a child, like martial arts
and scuba diving and I'm even in the stock market -- but I am disaster-averse.
And I am not a Luddite: I worked for Amazon.com before you ever heard of it,
and I now work for Microsoft doing a job that didn't exist three years ago. But I
believe it's best to be involved with the new technology as an employee,
consumer or long-term investor. To think otherwise is to become entranced by
the advantages of theft over honest labor. So with one caveat, let me see if I
can explain why I think that for most of us, Internet day-trading is not the way
to go.
The caveat: To see if I could be persuaded out of this line of reasoning, my
editor created an Internet-only stock portfolio for me to watch at the time I
started this piece, and you'll see how it turned out in a minute.
Forget the dental plan!
A TV spot for E*Trade shows a harried broker cold-calling prospectives while
the voice-over wonders, "If your broker is so great, how come he still has to
work?" This is the great false equation: Day-trading means not working. Now,
I like money as much as the next guy with a mortgage and subscriptions to
car magazines, but I'm not fascinated by day-trading, and if you think about
it, you probably aren't either. If you were fascinated by it, then you'd be willing
to study charts and graphs and resistance levels and SEC filings and annual
reports day in and day out for years. Get real.
Since you aren't fascinated, putting in that kind of time would seem like . . .
well, like work. And it's the hardest kind of work, because you by and large
do it without the help and support of colleagues, without the encouragement of
historical precedent and without a dental plan.
And because timing is everything in such matters, it's work that eats into your
off time -- work that's hard to really take a vacation from.
Professor Robert Haugen, author of "Beast on Wall Street: How Stock
Volatility Devours Our Wealth" and other books, says day-trading done right
involves a ton of research. He says he knows of one group of professional day
traders who realized profits by going long and short on stocks in pre-assigned
pairs. They eventually arrived at a method that was pretty much automatic,
but first had to use mathematical methods to figure out which stocks to pair
up and to chart their individual price trends. This is not the level of industry
exhibited by most ".com" traders.
M S N B C
S T O R I E S
PairGain surges on bogus
report
PairGain employee arrested
on fraud charge in stock
case
Witness the recent scam by which PairGain Technologies (PAIR) was touted
on a fake Bloomberg Web page and as a result moved up more than 30% in a
single day on absolutely no real news. The professional analyst who
uncovered the fraud did so by doing what the current breed of Web traders
apparently counts as heroic research: one click to Bloomberg's Web site and
one call to PairGain.
No wonder Haugen says prototypical seat-of-the-pants day traders are "fairly
likely" to eventually lose their money. "There's a lot of people who think they
know how to make money in the stock market by day-trading," says trader
Terry Bedford, who at his Toronto firm Bedford Associates moves in and out of
the big Internet stocks for his clients every day, "and I'm here to tell you that it
isn't as easy as it's been in the last year and a half."
But even if you are in the tiny minority for whom day-trading would not be work
of the most oppressive sort, there is another difficulty that I think for most of
us is a showstopper. Now, it's true that what appears to make day-trading a
wonderful opportunity is all this unprecedented access to information. Today,
little ol' me with my little ol' laptop can get data instantaneously that just five
years ago would have been beyond the ken of all but the biggest and most
inside Masters of the Universe.
But think it through: Nowadays, the Masters of the Universe are wired, too.
What advantage do I have over them now? None. In a stock market where
fundamentals don't seem to mean as much as what people think, the
enhanced velocity of (pseudo-) information means that, despite all the new
media trappings of the day-trading gig, the actual marginal utility of any piece
of relevant financial information I might suss out is close to nil. In a profound
sense, the contemporary day trader is trapped inside his information; any
attempts to break out of the trap, to get information that can be leveraged
because it hasn't already been disseminated and digested are doomed, like a
man trying to verify the headline on his morning paper by buying another
copy.
Right now, Internet day-trading bears the distinguishing marks of classic
financial euphoria articulated by Harvard economist John Kenneth Galbraith:
the widespread belief that due to some breakthrough circumstance, prices will
go up indefinitely, and the reinforcement of this belief by society's most
influential economic personalities and institutions. It is alarmingly like all the
financial euphorias of the past that have uniformly ended badly. "Right now,
AOL has a market capitalization greater than IBM," says trader Terry Bedford.
"That gives you an idea about how far things are out of hand."
continued......
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