New Breeds of Investors, All Beguiled by the Web
New York Times
May 16, 1999
By SAUL HANSELL
here is a myth that most of the people trading on the Internet are like Spyridon Ganas. Since opening an account with E*Trade on his 18th birthday in January, Ganas has taken to Web trading with a vengeance, betting not just on volatile technology stocks, but on the even more volatile options on technology stocks. A long-term investment is one he holds for more than a day or two.
"I'm part of the Internet generation," said Ganas, a high school senior in Shrewsbury, Mass., "and it was more natural for me to use the Internet for investing."
Alan S. Weiner for The New York Times
Bev. Waldrip and her husband retired to Blairsville, Ga, where they share eight acres with horses.
--------------------------------------------------------------------------------
Looking at the madcap market these days, especially the gyrations in shares of technology and Internet companies, it is natural to wonder whether the dominant investor is in fact some sort of recent Nintendo graduate who has wired his joystick right into his brokerage account.
But the phenomenon is far broader than the day traders who have made online investing almost a full-time pursuit. The number of households with people trading on the Internet has nearly tripled, to 6.3 million in the last 16 months, according to NFO Worldwide, a research firm based in Greenwich, Conn., that regularly surveys online investors and other Internet users.
An even more impressive number of households -- 20 million -- tap into the Internet for investment news, quotes and ideas, NFO surveys have found.
To understand more about who is using the Internet for investing and how it is changing what they do with their money, Money & Business asked NFO to assemble focus groups of active online traders, occasional online traders and the larger group of investors who glean information from the Web but do not trade on line.
Fittingly, the discussions occurred not in person but in a special chat room on the Internet, where the 35 participants could read and respond to questions posed by a reporter as well as the answers they typed in.
While these people represented a wide range of ages, incomes, investment philosophies and behaviors, a common thread emerged: The Internet has bolstered their confidence about investing and emboldened them to take greater risks.
"I feel a little more daring, now that I'm a better-educated investor," wrote Dorothy Brown, 52, of Morgantown, W.Va. She had mainly favored bond investments, but she shifted funds into stocks after trying trading at Charles Schwab's Web site.
In the focus groups as well as in follow-up interviews, the participants said they felt increasingly secure about their investment decisions as they used the Internet to monitor their portfolios, follow news about their holdings and track the comments of other investors.
Those who trade on line said they felt empowered by the minute-to-minute control that Internet investing allows -- and liberated from the intermediaries who have guided them in the past, like stockbrokers and mutual fund companies.
The New York Times
Source: NFO Interactive
--------------------------------------------------------------------------------
"With online trading, the easy access to the market is driving people to trade more, driving their confidence level up, raising their risk tolerance," said Lee Smith, a vice president in NFO's Internet research division. "They are holding stocks for a shorter period of time and holding stocks more than mutual funds."
If the trends hold, they will begin to alter the composition of America's retirement nest egg and the landscape of financing available to American businesses. They already have Wall Street in a tizzy, as traditional brokerage firms and stock markets confront upstarts and a few established players that have been quicker to latch onto new trading technologies. Even longtime professional traders now face a powerful new market mover.
"In the market's run from 3,000 to 8,000, a lot of the upward movement had to do with the fact that people were invested in mutual funds and were not apt to sell very quickly," said Charles Geisst, a finance professor at Manhattan College in the Bronx. "It's no coincidence that in the last year and a half, as Internet trading has become more common, the market has become more volatile."
Only after a number of years -- including a couple of serious bear markets -- will it be clear whether the newfound confidence and self-reliance of so many online investors is justified. What is already clear is that a big and growing group of Americans are engaged in a high-stakes experiment to see whether they have been prudent in betting their future on stocks they trade themselves.
Perhaps the Internet's most significant impact on investing -- evident in the fast growth of online trading volume and the increasing volatility in the markets -- is how it emboldens many investors to trade stocks more often.
NFO's surveys have found that among investors who have been trading on line for less than a year, 16 percent are what it calls heavy traders, those who say they have conducted more than 10 trades in the last six months. But of Web investors who have had online accounts for more than a year, 30 percent are heavy traders.
That's not only because active traders were first to jump on line. An NFO survey found that only 13 percent of investors who started trading in 1997 were heavy traders back then.
Many of the focus group participants said that their experiences matched the surveys' findings about the seductions of the Web.
"I trade more often, because it is easier and can be done 24 hours a day," wrote James Moyer, 45, of Elma, N.Y. "If a stock is moving -- up or down -- I am aware of it on a daily basis, and can sooner decide it is time to buy or sell. I don't have to fumble through a newspaper or an end-of-month report from my account."
any said they were trading more often because they were using the Internet -- often at their jobs -- to watch prices throughout the day. That offers the temptation to pounce the moment they see reasons to hop in or out of a stock, though even some who do so are ambivalent about the merits of such trading.
"I do trade more than when a trade cost more than $8," said Treg Owings, 41, of Madras, Ore., who said he checked his portfolio often during the day. "You might trade something because it looks like it is dropping, and the next minute it is up $5. The cost of trading with a broker might discourage in-and-out trading and might save some people money in the long run."
Ed Quinn for The New York Times
Spyridon Ganas at his family's pizzeria in Natick, Mass.
--------------------------------------------------------------------------------
Many people are relying less and less on traditional sources of guidance, like brokers and mutual funds, as they actively trade stocks in their Internet accounts.
"I do not miss the frustration of the broker trying to sell you something," said Bev Waldrip, a retired customer service representative for BellSouth who lives in Blairsville, Ga. "They do not understand the word 'no."'
Indeed, NFO, whose research clients are mainly financial services concerns, is finding that Web trading is becoming much more of a threat to the big, full-service brokerage firms like Merrill Lynch and Paine Webber, which often charge commissions 10 times higher than those at the online firms but provide access to a broker for advice.
"It used to be that the bulk of online investors came from the discount brokers, because they are more comfortable making independent decisions," Smith of NFO said. "Now, transfers from full service are starting to grow as people realize that all the information they see on line makes them less dependent on their brokers."
Similarly, the infatuation with online stock trading threatens to halt the two-decade-long shift of investment assets out of individual securities and into mutual funds.
"I would rather manage my own 'fund,"' said Thomas Holycross, 68, of White Lake, Mich., who opened an account 10 years ago with what is now DLJ Direct, the discount unit of Donaldson, Lufkin & Jenrette.
Charley Kashou of Mequon, Wis., says he is putting less into mutual funds now. "I've been doing too well in stocks to put it in funds," he said.
One of the most striking aspects of the focus groups was how important the Internet has become even to investors who have never placed a trade on line.
"The Internet is speeeeeeeeeeeeeed," wrote Leo Lomasney, 62, a longtime investor from Rochester, N.H., who said he was too lazy to learn how to trade on line. "The Internet has allowed us poor people access to the information that the brokers used to own," he added, explaining that he uses several Internet sites to get investment ideas.
Jerry White, 52, a semiretired engineering executive in Ferndale, Calif., checks the value of his portfolio on line every day, reads investing news on the Web and occasionally ventures onto message boards to see what others are saying. He is trading more often, he said, because the Internet gives him more ideas.
Still, he feels more comfortable trading through the Morgan Stanley Dean Witter broker who has an office near his home and with whom he can compare notes. "I'm making faster choices," White said. "I'm still not sure they are better choices."
Specner Tirey for The New York Times
Terry Sneed, center, with two actors in Little Rock, Ark.
--------------------------------------------------------------------------------
The many message boards and chat rooms where users share ideas about investments with one another are, of course, the most controversial sources of investing information on the Web.
The Securities and Exchange Commission has highlighted these sites as fertile breeding grounds for fraud. And a substantial number of Web investors simply have no use for stock tips from strangers.
"I don't use the message boards or chat rooms -- they are too large and time-consuming for my needs," said Moyer of Elma, N.Y. "I know what I'm looking for and go to more reliable sources than what an anonymous Net user has to say."
Ganis, the youngest participant in any of the focus groups, takes an even more cynical view. "Message boards can't be trusted," he said, "but they're useful if you want to hype a stock you just bought."
By contrast, Ms. Waldrip, the former BellSouth employee, who is 57, said she had had good luck with online investment tips. Someone she met in a chat room on America Online suggested buying the stock of Home Depot, an investment with which she has been happy.
While several people in the focus groups reported bad experiences with tips on line, many said the message boards still had allure.
"I lost a lot when I was new to them; I believed people," said Kashou, the Wisconsin investor. Yet even though the boards are populated by "a lot of hypesters," he added, he continues to read them, because "occasionally I find a good idea."
Besides, many investors said, traditional sources of investing information just seem anachronistic in the Internet era. "If I read the paper, the opportunities to strike are already gone," said Thomas Fitzgerald, 33, of King of Prussia, Pa. "It is always old news after you have been on the Net."
s people become comfortable using the Internet for investing information, the principal lure to leap into trading on line is the very low commissions of the online brokers. But the focus group participants said that as they experimented with online trading, what they liked best was the sense of control it gave them.
"Price is a big factor, but that alone wouldn't do it," said Mary Hill, 49, of Salinas, Calif. "On-line trading is easy, always available, and I don't have to listen to someone try to tell me what they think," she said.
Most of the focus group participants were satisfied with their online trading experiences, though a few complained of being stymied by the occasional computer glitches that have kept big online brokers like Charles Schwab and E*Trade from processing orders.
"I've had trouble getting on a couple times," said Wendall Sherk, 34, of Florissant, Mo. "But brokers don't answer their phones at bad times, too, so that's no different."
Jennifer Crissey, 32, of Milford, Pa., was not so sanguine. "I have had problems with orders not going through or the Web site being down with Schwab," she said. "This has prompted me to switch many of my accounts" to another online broker.
The New York Times
Source: NFO Interactive
--------------------------------------------------------------------------------
NFO's surveys have found that about 22 percent of online investors have switched their Internet broker at least once. But most have moved for lower prices or better investing features, with only 14 percent of the switchers citing complaints about service or computer problems.
Still, highly publicized computer glitches at most of the major online brokers have discouraged some people from trying online trading.
Mike Carlson, 48, of Aurora, Colo., said that his family had been planning to move some mutual funds to an online brokerage account, but that the recent problems at online trading sites "caused us to back off."
Presumably, the best measure of the value of any investing tool is how well a portfolio performs. Many focus group participants said they thought that going on line had made them more successful investors, though some had lingering doubts.
Robert Grisinger, 47, of Junction City, Kan., said his return has been higher, "but that could be because it seems the market is booming and hasn't taken a good crash lately."
Another reason that online investors cite for their having done well is their eager buying of the stock of Internet companies -- the hottest, if the most volatile, sector of the market recently.
"I am taking advantage of the Internet explosion," said Fitzgerald of King of Prussia. "It's a wild ride, but returns are big if you play it right."
Professional traders have long observed that a large part of the activity in Internet stocks comes from small orders entered through online brokers. And a Gallup survey for Paine Webber earlier this year showed that 44 percent of online traders have invested in Internet stocks, compared with 15 percent of investors over all.
Still, a lot of participants said the Internet stock ride was just too wild for their tastes.
"I braved into Internet stocks about a year ago, bought Lycos and sold it four days later at a $500 profit," recalled Moyer, the New Yorker. "The reward was great, but the trauma was awful. I haven't bought an Internet stock since."
Even among more active traders, there is a widespread feeling that the wave of Internet investing will soon crest.
"I think online trading has spurred part of the new high record prices and is spurring them on," Moyer said. "If the market takes a downturn, it may be a really big one, as people won't ride out the storm."
Indeed, like investors through the ages, the Internet traders are more concerned about how other investors will behave than about their own investing.
"It is like driving," said Owings, the Oregon investor, who is proud of his purchase of technology stocks like Dell Computer and Ebay. "You have to worry about the other guy."
Another focus group member, Dean Coston, 75, who was deputy under secretary of Health, Education and Welfare in the 1960s and is now retired, pointed the finger at the generation of beginning investors.
"The thing that concerns me is all the younger investors who have never experienced anything but a rising market," said Coston, of Falls Church, Va. "They don't know that what goes up will come down. It will be terrible for them."
But to Spyridon Ganas, the high school senior who trades options in technology stocks on line, the beauty of the Internet is that it lets him take advantage of what he considers the folly of his elders.
"The baby boomers think the stocks are worth it," he said. "So I might as well ride the wave."
|
