The Siren Song
of electronic day trading

by Ann Coleman (TMF

Reston, VA (June 18, 1999) -- The bookstores are full of them. They are even all over Fool HQ. Books that tell you how you, too, can make millions as an electronic day trader. Don't like your job? Trade stocks for a living!

I don't doubt that there are day traders our there who have made huge sums of money in a very short time. One was recently profiled in the Washington Post Magazine. He lives just a few miles from here. With his parents.

I just hope that some, at least, of these newly rich traders are smart enough to take the cash and run. Unfortunately, such stories are a siren call to folks who view the stock market as Las Vegas North. Worse, they appeal to the legions of vaguely dissatisfied, not quite successful, bored and disaffected employees who keep thinking that all they need is "a break." The day-trading world is pitiless. If you need a break, see a social worker, because day-trading "breaks" come with interest rates attached.

But what's the big picture here? For every new day-trading millionaire, how many hopefuls have run through their entire life savings (the lucky ones) and how many others (the less lucky) have ended up deeply in debt?

The electronic day-trading craze that has been keeping profits up at bookstores lately is giving investing a bad name -- and it makes me feel rather put out. (You can read that however you like. Use your imagination.)

The common factor, other than the fact that the day traders are trading stocks and we Fools invest in stocks, is that many day traders (although not the most "sophisticated") use online discount brokerages. I use an online discount brokerage. About 6 times a year. Other than that, day trading is no more related to the kind of investing we practice than blackjack is to chess.

(Those books around our office? Review copies. Unsolicited, I might add.)

What is particularly disturbing is that the folks who are so eager to teach others how to cash in on this stock market bonanza that they have to write a book about it are the very ones charging day traders for office space, commissions, etc. The whole craze reminds me of the California Gold Rush. Who got rich? Not the prospectors, for the most part. But huge fortunes were made by the guys selling the picks, shovels, pans, food, whisky and, of course, those tough blue denim pants with the rivets on the pockets.

I hope I am preaching to the choir today. You all know better, right?

Fool on and prosper!

Today's Stock Lists | 1999 Dow Returns

Call Your Boss a Fool.

 Recent Foolish Four Portfolio Headlines
  12/28/00  Modifying Mechanical Strategies
  12/27/00  Beating the S&P Year 2000 Recap
  12/26/00  After-Hours Quotes
  12/22/00  Why Include the Foolish 4 Port?
  12/21/00  The Value of Community Input
Foolish Four Portfolio Archives »  

06/18/99 Close
Stock  Change   Last
CAT  +2  5/8   61.50
JPM  +   7/16  135.13
MMM  +   3/8   91.00
IP   +1  7/8   55.19

                  Day    Month   Year   History
        FOOL-4   +2.20%   6.68%  29.54%  31.46%
        DJIA     +0.13%   2.80%  19.02%  18.55%
        S&P 500  +0.22%   3.16%   9.83%  10.10%
        NASDAQ   +0.76%   3.76%  16.91%  18.51%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     61.50    42.76%
 12/24/98    9 JP Morgan    105.51    135.13    28.07%
 12/24/98   22 Int'l Paper   43.55     55.19    26.72%
 12/24/98   14 3M            73.57     91.00    23.69%

    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1476.00   $442.00
 12/24/98    9 JP Morgan    949.62   1216.13   $266.51
 12/24/98   22 Int'l Paper  958.12   1214.13   $256.01
 12/24/98   14 3M          1030.00   1274.00   $244.00

              Dividends Received      $49.99
                             Cash     $28.26
                            TOTAL   $5258.50