By Jared Chausow
By Katie Toth
By Elizabeth Flock
By Albert Samaha
By Anna Merlan
By Jon Campbell
By Jon Campbell
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It was game time in Matt's midtown office, and the quarry at hand was Warner Lambert (WLA), a pharmaceutical company whose price was hovering just 25 cents shy of 100, its all-time high. For nearly an hour, Matt paced and watched the flickering blue digits on his screen. WLA's price edged up to 100 and Matt held his breath. A moment later, WLA ran to 100 and 1/8, and he clicked.
Instead of stock, Matt bought 1000 shares of "in-the-money call" options, valued in relation to the stock's price. If WLA moved up a dollar, the option price would move by the same amount--and that would make Matt $1000 richer.
"A grand a point," he whispered. "A grand a fucking point."
Now Matt was grooving on the spiky graphs on his screen. Hunched over his computers, miles from the real action, he could hear the Wall Street racket in his head. Better than blackjack, he thought.
WLA surged to 100-and-3/4, but Matt held pat, looking for 101. Then the stock slipped to 99--and then it fell again. In a few hours, WLA had plummeted to 98 and Matt toyed with selling. But he was deep in the trader's trance. At 95, Matt finally folded. The high had lasted 48 hours. It cost him $1500.
Matt is not alone in his dream of taking a high-tech ride to easy street. Over 4 million Americans have bum-rushed the stock market on the Internet, and analysts estimate that their ranks will nearly triple in the next four years. Already 76 firms are in the online trading biz, and industry watchers predict that, by the year 2000, Internet trades will account for half the retail transactions on Wall Street. Banks and brokerage houses are jockeying for a share of this potentially major market.
Fueling the blitz is a historic shift in the way Americans invest and save. As employers relinquish the role of managing 401(k) and pension plans, more and more people will run their finances solo, without any help from a professional. Many of these novice speculators will plug into the market, enchanted by the mantra of the money gurus: invest early and often.
Online brokers have a vested interest in encouraging this drill. "If they are available 24 hours a day and giving you news and information at a fast clip, they are more likely to prompt a trade," says Chris Musto of Gomez Advisors, an online-brokerage consulting firm. "So there's perhaps a doubling of trading activity when people go to online brokers."
Another reason for this higher turnover is that it's so cheap to buy and sell on the Internet. A virtual trade costs about a tenth of the average full-service broker's fee. But this bargain means that electronic brokers have to convince more people to trade more often in order to turn a profit. The result is the creation of a new virtual environment: part video game, part Vegas.
Click on Ameritrade. Twinkling hyperlinks urge: "Trade now" and "Learn more." If you choose the latter, you'll encounter a twentysomething film-production assistant boasting, "With Ameritrade, I save money. I feel smart. I even have fun."
Until the Internet, fun was not the word most people would associate with investing. But what could be neater than heeding E*Trade's slogan: "Boot Your Broker!" The pitch here is that the professional's advantage has been erased by the Internet, with its ability to deliver data quick and cheap.
The problem with this premise is that Wall Street expertise doesn't come from having the latest news, but from a working knowledge of market dynamics. "Once it's on the news tape its worthless," says hedge-fund manager and business columnist James Cramer. Most pros would agree that a small investor who does well by trading heavily owes his success to the bull market. "The market has made a lot of people think they are traders who are not," notes Cramer.
The E*Trade site does nothing to dispel that illusion. Dayglo charts compute the daily odds on the Nasdaq, AMEX, and NYSE. For strangers to this "universe of research," they'll stake you $100,000--just like a real casino--in a no-risk E*Trade game. To the generation raised on video games, such gambits are a natural extension of the Nintendo years. Only now, the high score means more than zapping your digital enemies; it means making your killing in the real world.
In some cases, you can trade without cash in your account. Just fill out the questionnaire and you're ready to become what one online broker calls "a player." Slogans like this peddle the old archetype of the macho male, powerful and potent--and these days, many women too want to add swagger to their lives. Such fantasies mix easily with the fascination of a new technology, and a recent Wired survey found that 82 per cent of "the connected" (i.e. heavy users of e-mail and digital equipment) own stocks, bonds, and mutual funds. These "digital citizens" are a prime market for online investing, if only because, as Wired notes, they "worship free markets."
But ultimately anyone who covets a wealthy lifestyle is a potential customer. Golf course and Concorde ads run next to the market charts, as business and pleasure merge in cyberspace. "Buy low. Score low," the ad copy urges. Mock portfolios allow you to track stocks you don't even own, providing a pulsing connection to the supertrader flexing in the arena of the Great Bull.
In the roaring '90s, when beating the market is more popular than fighting the power, the market jock has become a cultural icon. Two Sundays ago, The New York Times featured a splashy cartoon of bankers battling in "the canyons of Wall Street" while helpless superheroes look on. Even rock stars, models, and athletes--the old-school guardians of cool--are playing the mogul game.
In the '80s, Gordon Gekko, the heartless leverage-buyout king of the yuppie classic Wall Street, went to jail for his sins. Now, after a decade of relentless market growth, the culture's ambivalence has given way to a heady embrace of high finance, and millions aspire to Gekko's icy mien.
As business becomes a metaphor for cool, investing is being transformed into investainment. Last month, E*Trade signed a comarketing agreement with CBS SportsLine. The deal to snag affluent fans suggests an overlap between men who work the market and men who follow teams. It makes sense, since sports, like stocks, is a game of data, in which measuring performance is part of the thrill.
The connection isn't lost on Matt. When he clicked on sell, he felt in his fingertip all the information on market conditions the late 20th century could offer. The rush of molding and manipulating all that data--of power wrapped tight--is a big part of being infohip.
It's easy to do well trading in the market these days. But when it comes to the small investor, most professionals agree that buying and selling at breakneck speed is the worst possible strategy. "Constantly switching your money from one fund to another is an expensive habit that is harmful to your net worth," notes the prominent mutual-fund manager Peter Lynch.
Heavy trading works for big-time institutional investors, who have many advantages over Joe Clickpack. Wielders of concentrated capital have access to initial public offerings at prices well below what the public pays. And even when they buy retail, the big boys have the leverage to profit from micromargins--what Tom Wolfe called "golden crumbs"--while small investors must wait for a score that may never come. "A lot of people who think they are executing trade strategies that beat the market are not," says Musto. "They are losing because their profits are being eaten up by commissions and spreads."
Still, the future of investment lies in these Internet environments. Analysts envision a time when trading carries little or no transaction costs and the Internet is so pervasive--and such fun--that people will buy and sell stock anywhere, anytime.
Even though Matt has left the table, he can't get WLA out of his head. He checks the stock frequently, and he's lacerating himself because it's just split three-for-one. Would he ever invest the stodgy way, waiting for his capital to grow over time? "It's like saying, 'Would you rather be at a library reading a book?' " Matt observes. "I consider this a totally hyper type of activity. I could call it hyperinvesting."
Soon, Matt's preoccupation may involve more than just managing his money. Imagine downloading a Sony Tristar movie and, along with the usual commercials, being offered a deal on Sony stock. Imagine millions of people deeply engrossed in a form with the immediacy of television, the inteactivity of a video game, the high-stakes tension of gambling, and all the gravity of growing wealthy. Imagine the Net as the technology that marries money to fun. There will certainly be bumps along the way, a few recessions here and there, maybe another depression. Minor stuff. But one day, the market will be us.