Easy Money

July 29, 1999

I don't know all the facts, except that the guy was known as a "day trader," and it appears, a serial killer. Something set him off, and as of last count, 12 people are dead, not including Mr. Trader.

It has been reported that before he started shooting he said something to the effect that he hoped "this would not ruin your trading."

The truth of the matter is that the issue of day trading has been bothering me for some time, especially after seeing the ads on TV and in print, for making your fortune, replacing your broker, and buying islands.

Note though, that this incident has probably more to do with a psychopath rather than day trading, but that still leaves the day trading issue on my table.

As for buying the island and finding your fortune on tradeit.com; sorry to disappoint you, but it does not work that way.

This happens to be one area of business which I know very well. I have a license not only to trade stocks, bonds and all the other goodies, but to supervise stock brokers as well.

The inherent principle in day trading is to make a "quick" profit, sometimes in minutes, as you bet on the movement of a stock, up or down.

The principle can be summarized as the greater fool theory, which states in essence, you purchase something at a high price, hoping to sell to a greater fool at a later date (read minute here) and at a higher price.

The rules of economics such as purchasing something for its value, are not considered in this instance.

The articles which are written exclusive for my industry have been sounding warning bells about this activity for some time. It is estimated that 20% of day traders are in fact, compulsive gamblers. I read of a case the other day where a seasoned stock broker, took his 5 million dollar retirement plan and lost 4.9 million of it, day trading.

I wonder if that was the money the guy in the tow truck used to buy his island.

There are certain rules of life which defy expectations to the contrary. A couple of them which we should be aware of are:

Bubbles burst
Day trading involves winners and losers
Just because it has a dot.com in the name, does not mean it will make money.

Beware the lie of easy money.

If it was really that easy, don't you think all of the stock brokers of the world would have long ago bought up all the islands?