Technologies pave way for daytraders in market

By David Drucker

Daily Bruin Contributor

The reach of the Internet and the Information Age may be marked
by the rise in the average American’s investment in the stock
market and its offshoot ““ daytrading.

Internet stock trading companies enable individuals to open up
an account and buy and sell stocks in public companies directly,
bypassing the standard method of purchasing via a stock broker.

“It opens up opportunities to investors and adds liquidity
to the market,” said Howard Ko, president of the
Undergraduate Investment Society. “It has created more of a
hands-on approach to the market, and allowed people to see what
they’re investing in.”

The rise in direct investment through Internet accounts has
coincided with a rise in the numbers of Americans who invest.
Consequently, market characteristics have changed, according to
analysts.

“The holding period for stocks has dropped from an average
of two years to four to five months,” said Anderson School
finance professor and market analyst Antonio Bernardo.
“There’s also a much greater daily trading
volume.”

Bernardo, a market volatility expert, added that the Nasdaq
““ the favored stock exchange of daytraders for its quantity
of technology stock offerings ““ has grown in value and
shifted between extreme highs and lows partly because of the
increase in the amount of stocks traded on a daily basis.

According to Bernardo, it’s not unusual for 2 billion
shares to change hands in a day, a five-fold increase from the
pre-Internet boom.

The “day-trader,” as opposed to the traditional
buy-and-hold investor, tends to buy and sell the same stock
quickly, and usually does so on impulse.

“A lot of daytraders go into investing thinking
they’re walking into a casino in Vegas, rather than as an
actual investment,” said Michael Kim, financial advisor for
Prudential Securities in Century City, and UCLA alumnus from
1995.

“People who are just starting out tend to get emotional
and buy and sell at the wrong time.”

Daytraders have also affected the market itself. Said Bernardo,
“Daytraders tend to be momentum traders, which exacerbates
movements in the market and makes it a lot more volatile.

“It has made what would normally be small swings in the
price of stocks bigger swings,” he added.

Kim said he has clients who daytrade as well as utilize his
services, and noted that his clients’ knowledge of the market
and how it works has increased from previous years.

“People are a lot more savvy ““ they know what
P.E.’s (profit to earnings ratio) are now. They used to leave
things like that to people like me,” he said.

“Though my clients are more willing to question me, the
recent volatility has made them more apt to listen to me than
ever,” Kim continued.

How the daytrading trend is going to shake out is as yet
undecided.

“The technology we have has just started the lay person
investing, but who knows where this trend will go in the
future,” Ko said.

Added Kim, “Though I don’t think it’s where
someone with a significant amount of money would want to invest,
online investing is definitely not going away.”

In yet another possible consequence of the era of the impatient
investor, Bernardo explained that some of Anderson’s best
students are attempting to profit from the market through methods
other than daytrading.

“The most important impact of this phenomenon is how its
diverted human capital from traditional industries to dot-com
companies,” Bernardo said.

“This has a big impact long term, because, if you
can’t hire the best people, its going to affect your
company.”

Original graphic by JOYCE CHON/Daily Bruin Web adaptation by
BENJAMIN CHIANG/Daily Bruin Senior Staff AMERICANS INVESTED
IN THE STOCK MARKET

This includes shares held directly, through mutual funds or in a
pension fund (410K).

SOURCE: NYSE 1998 Share Ownership Survey