Day trading returns

Marketplace Staff Jan 19, 2007

VIGELAND:
I was trying to remember this week when was the first time I heard the term daytrader. Must’ve been in the late ’90s. We all heard about those guys and gals who spent their days buying and selling stocks online.

Well, I saw another definition in something called the Devil’s Derivatives Dictionary. “Daytrader:” The financial market’s equivalent to the little old lady who spends everyday at the casino sticking quarters into a slot machine. Why are we revisiting this relic of the .com area? Because apparently, it’s back. Walter Hamilton wrote about it for the Los Angeles Times. Walter, thanks for talking to us.
WALTER HAMILTON:
My pleasure. Thanks for having me.

VIGELAND:
Now, I have to tell you. When I read your article talking about how daytrading is back with a vengeance, I just had horrible, horrible flashbacks to the late 1990s, when all these people would buy and sell and buy and sell, and lose entire fortunes in a day daytrading. What are we seeing here?

HAMILTON:
What we’re seeing now is not quite a repeat of the 90s. It’s kind of a mini-version. You’re seeing increased interest by individuals in aggressive trading. They’re not all daytrading, i.e. buying and selling a stock the same day. But it’s–you know there’s a small but growing core of people who’s aggressively trading stock; either full-time, quitting their jobs and doing it, or part-time after hours. And just as in the ’90s, they’re looking to make a killing.

VIGELAND:
So how concerned should we be about this given the track record?

HAMILTON:
I don’t know if we should be concerned, although I certainly think they should be concerned. I mean I’ve covered this for quite a while, and you almost get a sense of almost who’s going to washout and who is not. I got an email this morning from someone saying, “I have a dead end job. I can barely pay my rent, but I’m interested in quitting that job and trading full-time. Can you give me some information?” It doesn’t bode well for someone like that.

VIGELAND:
What’s the reason behind why we’re seeing this uptick in trading by people who are not professional traders?

HAMILTON:
I think it’s really some of the same factors that we saw in the 90s, which is the market is going up. And it’s that old expression people confuse brains in a bull market. And I think there are people who, in this market, have started slowly. They’ve made money; they’ve done well. Stocks have gone up, etcetera, and all of a sudden they start to overestimate their talent and think, “Hey, I can do this full-time.” I get a sense that there are a small, relatively small, fraction of people who try this who succeed. I interviewed one guy who got into it in the late ’90s. He scratched out small gains. He’s done well in recent years. Someone like that, I think, can succeed in this. But other people who don’t realize how hard it is, and the fact that you have to really learn a lot and put up with a lot, and take your lumps; it’s human nature. If you haven’t seen the daytrading losses in the ’90s and you’re getting into it now, I’m not sure there’s anything I can say to convince someone otherwise.

VIGELAND:
Is there any element of concern for the market itself? Is there any chance that this could have a greater impact than the individual?

HAMILTON:
I don’t think so, and the reason is two-fold. One, in the 90s, you know these daytrading types and these aggressive individuals were having an affect in some stocks, but they were narrowly focused, primarily on technology and internet stocks. You have less of that this time around. Certainly they are in some of these speculative stocks, but they’re also in energy or other things that are moving. So it’s disbursed to a far wider range of stocks. So I don’t think individually, individuals are having. . . or collectively, individuals are having that much of an affect on the market itself.

VIGELAND:
You’ve been following this for years, since the last big daytrading boom. Are you surprised that it’s come around again? Is this a signal that people don’t learn lessons?

HAMILTON:
I think it’s absolutely a signal. I think there are a lot of people who think it’s easier than it is. And there’s, you know, a certain segment of society whether they’re trying to flip condos in Miami or daytrade stocks, and they have some initial luck, and, you know, hope springs eternal. And they just overestimate their abilities and the nature of the market and how hard it is. And I think you’ll always have a certain element of that.

HAMILTON:
It’s quite amazing. I mean you do ask questions like, “You are aware of the losses that happened last time.” And people say the same things, “No, I’ve read books. I do my homework,” etcetera, etcetera, etcetera. But you also see. . . one of the people I spoke to just didn’t know when to sell. This person was saying, “You know, I really have to learn when to sell. And it’s okay, because if I don’t get out in time, I can always become a long-term investor.” I’m thinking, “You know, if your stock loses 90 percent of its value.”

VIGELAND:
You’re not going to have anything left to invest.

HAMILTON:
Yes, it’s a real unwise mentality. So as I say, it’s just there are certain people who don’t learn their lessons, and we’ll see.

VIGELAND:
Walter Hamilton is a business reporter with the Los Angeles Times. Walter, thanks for coming in.

HAMILTON:
It was my pleasure. Thanks for having me.

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