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Return of the Day Trader
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As the Dow creeps up, much maligned day traders are coming out of the closet again. Lee Eisenberg on his own perilous relationship with stocks—and his system to beat Buffett.
A few weeks ago, I felt a neurological twitch, a tingling in the right index finger. At my age, you don’t take tingling fingers lightly, especially if your courage in the face of terminal collapse is closer to Woody Allen’s than Socrates’. Not only that, a breadwinner can’t be too careful. There are those who depend on me: beloved wife, kids at fancy college with nosebleed tuition bills, 12-year-old dog with cysts (vet says they’re benign but you never know). So I try—I really do try—to be financially responsible, invest conservatively, minimize risk at the expense of reward. Typically I cling to the safety of T-bills, leaving only a small portion of our diminished nest egg exposed to the ravages of the market.
When Phase Two landed with a thud, I swore—great gobs of us swore—never to day trade again. Fool me once, shame on Henry Blodget. Fool me twice, shame on me.
But the second I felt the tingle, I threw caution to the wind. A midlife swipe at adventure? Maybe—but certainly further proof that we are, as behavioral economists tell us, irrationally optimistic and brimming over with hubris when it comes to making financial moves. Whatever it was, and with my right index digit still on vibrate, I logged onto an online brokerage and, for the first time in years, placed what was (for me) a reasonably heavy bet. Six hours later, fickle finger still pulsing, I dumped the investment. Just like that, my dependent brood—wife, kids, be-cysted dog—was $1,700 more secure than when everyone crept out of bed that cold morning.
I was back in the saddle (an Aeron chair, actually). I’m day trading again. And I’m hardly the only one. Over the past couple of months, the good-old, frenzied in-and-out trading game is back, juiced by a surprising increase in the opening of new personal trading accounts.
Buy and hold? Look where it got us.
Hey, it’s time to take the bear by the horns.
To stop frothing and back up:
Once upon a time, I day traded with controlled aggressiveness, but I was never so feckless as to quit my job and hunker down in the basement surrounded by monitors continuously refreshed with real-time quotes. Moreover, I harbored an instinctive distrust of Jim Cramer before it was fashionable. But like millions of others, I went through phases when I was cocksure I could outsmart the market.
Phase One was the early 1980s, pre-Internet but post the emergence of discount brokers. Overnight, trading costs had become beside the point—mere pennies per transaction compared to the sobering 1 percent commission (a hundred bucks on a $10,000 trade!) you had to fork over to a smooth-talking, order-taking broker at Merrill Lynch, someone who knew as much about picking winners as the rest of us did—which is to say, virtually zero. Phase One was a blast while it lasted. My pals and I—writers, editors, creative types with a lifelong disdain for Wharton School types—met daily for lunch at a Greek coffee shop. There, we exchanged stock tips with our mouths full of tuna fish, then raced back to the office to phone in our bets. What did we bet on? What didn’t we bet on? Shooting stars called NBI, a pioneer in word processing, or AOL, a sure thing as there never was. Each night when we left our offices, we made sure to pick up—I’m dating myself here—the late edition of the New York Post, which carried the day’s closing prices. More than once I was nearly dented by a taxi as I crossed against the light on lower Park Avenue, my nose buried in the stock tables, calculating the day’s winning receipts.
Phase One came to a crushing close, of course, and those of us who lived through it will never forget the induced nausea that hit on October 19, 1987: Black Monday, when the market dropped 508 points (22.6 percent, but who’s counting?) Wise heads told everyone not to panic. And me, I didn’t panic—for three whole days. Then I panicked. Threw my entire day-trading portfolio overboard. So did all the other hot shots at the lunch table. After that, with tails between our legs, we still went to the Greek coffee shop and shot the breeze, but the only trades we talked about now, and for nearly a full decade that followed, were pending Rotisserie League moves.
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flyoverland
My brother-in-law made a small fortune day trading. Regretably, he started with a large fortune. There is a difference between being actively involved in your investments and churning your own account for the thrill. He's now back to work at 68. I will say there are a lot of good buy signals in today's market. Good bye house, good-bye 401k, good-bye savings.
amapola101
Its not just Jim Cramer, they make mistakes, like everyone else. I think they educated millions of people.!He let normal people learn about the markets.But you cant let anyone tell you what to do with your money.Thats whats wrong with the gov, the past years and this year. They continue to spend our money. What about fast trade,???.... When they talk, ???but now everyone knows, only to take only suggestions, but at first, people thought they were gurus., Years ago I thought of suing, the money chanel,and money magazine, fortune,etc.they told you,you couldnt fail.!! they were 100% sure , in what they adviced, and the bubbles exploded!!!. At the end, you better know what you are doing and in control of your assets. The money chanel in my opinion hurt many,many people 12 years ago.Now we take it for what it is.Flyoverland, its not just your brother in law,who I can relate to, its so many of us,Its millions, of people,who did not even gamble with the money. What is awfull is tht some people cannot find where to work, or are not trained for the work of today, and I dont see any changes, coming from the top. Many of us were sold the failry tale, and we cannot compete with the big guys inside ravaging all.We didnt stand a chance.!!!!!They stole and manipulated to their benefits.and I blame our politicians, and gov. for not watching over our welfres, and safety.besides the crooks,in banks, wll street etc
exploora
I know when I switched my savings over into another currency, almost everyone, talked to me like I was mental.
The currency I pulled out of, dropped 18% give or take, the stock market even crashed, or the bubble burst, however you want to look at it, and you know it makes a huge difference, if you use, charts, know the indicators, and have an ability to judge the ceiling and the floor to a degree, in this market it is very hard, to know the bottom and the ceiling, but for people who give an opinion, without any research at all, often do more damage, than a person who has done the research because they don't work for you, and you do. They are just pumping themselves up, like flyover land.
And then if you do take a risk, grow your savings a bit, they will say you just got free money. There is no connection between a calculated risk you make for yourself, and a generic risk a stranger makes for you, while charging fees and commissions.
No wonder Madoff looked like an attractive investment.
The people at the bank, they were saying to me they were trained, of course they are, that is the not issue, who are they working for, how much commission do they get, that is the issue.
Even the manager phoned me and said I was going to lose money, I didn't, people who bought their "ethical" "low" risk rrsp's did.
I know people who did what they were told lost lots of money, one guy told me he lost $200,000, not counting the currency difference, that he had saved from his hockey days. He had no idea what he was going to do. He expected that his professional financial advisor would have pulled him out, as the risk escalated.
Possibly his financial adviser was too busy with his own portfolio, and his "wealthy" clients.
exploora
It is not about outsmarting the market, it is about knowing the turn the market, the trend change, or knowing how to judge if a currency is mispriced, or a share is mispriced.
That is what the bankers were saying, you can't outsmart the market, I wasn't saying I was, I was saying the currency was mispriced, and the bubble was going to burst. Pop.
exploora
The trick is not to trade when you feel euphoria, or you want to feel euphoria, that is not rational.
And that is how the bubble grows. ETFs are going to respond the same way as anything else, the more people buy, the higher the price, the more people sell, the lower the price. so the investors are shifting the beta risk, which is not really stationary, when that kind of movement happens.
So you aren't outsmarting the market, you are outsmarting the banker.
It is always easier to attribute the success to yourself, and the failure to something else, even Buffet said buy low sell high, so his shares are now high, and people are selling them, partly because they need the money too.
I think predicting what a hundred people will do is easier than predicting what one person will do.
I have no regret changing currency, I would have regretted listening to the banker, if I hadn't changed currency. The banker does not work for us. Our asset is their liability, and their asset is our liability.
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