Dumb Money: Adventures of a Day Trader

INTRODUCTION These are the years of opportunity. In the late-afternoon sunshine of the twentieth century, good fortune has beamed down obligingly on equity owners everywhere. Rarely have capital gains been so easy. Some people had the good luck to be born in a tropical paradise before European conquest. Some had the luck to be born wealthy in an enlightened age. It was my destiny-the equivalent, in contemporary thinking to genius-to reach adulthood at the beginning of the most phenomenal bull market ever known. At least I know enough to be grateful. I have earned little, but I have been denied less. Among the beneficiaries of unearned wealth, I rank, if not first among equals, squarely in the middle of the graduating class. This is my story. It is not a story about Wall Street. The image of a street is an inaccurate metaphor for where my form of wealth creation takes place. Wall Street, from its earliest days, was a kind of a club, with membership regulated by an evolving administration of gentlemen devoted to monopolizing the easy money. in exchange for guaranteed wealth, they undertook to bring order to the market. With the help of the government, they succeeded. Since the Roosevelt administration, regular crashes and depressions have been tamed by close collaboration between Washington and Manhattan. This alliance has blessed us with deposit insurance, the Federal Reserve Bank, and the Securities and Exchange Commission. It gave us a set of dull and restrictive laws that enforced separation between the insurance industry, retail banking, and speculation in the financial markets. It gave us mutual funds, prosperity, and a stable post-war system. And that, my friend, is the last of you'll hear of any of those virtues from me. Many years ago, the New York Stock Exchange attempted to lure crash-wary small investors into the market with a patriotic campaign. "Own your share of America" was the slogan. "There is no stock exchange in Moscow," added G. Keith Funston, the president of the Exchange, "nor is ownership of promising enterprises in Russia available to the public." Funston's hope was that democracy would be safer in the hands of people who had pride of ownership in capitalist enterprise. This was the altruistic motive. The pecuniary motive was expressed by fixed trading fees of as high as 12 percent. This situation has evolved somewhat in recent decades. For one thing, trading costs have plummeted. Also, nobody needs to be reassured anymore about the moral legitimacy of stock ownership. Patriotism, having served its purpose, no longer intrudes. It is just as well. In my view, which I take to be the majority opinion, the only reason to own your share of American enterprise today is to sell that share to somebody who is just a little bit more eager than you to bet on its future. To understand what I have to say about day trading, it is important to get into the right frame of mind. When you think of stocks, do visions of companies and products float into your head? Does Nike mean running shoes? Does McDonald's mean hamburgers? Does Microsoft mean computers? You must break that habit. Purge these associations from your memory banks. It won't be easy. The day-trading environment is designed to confuse. That interview with the beefy, shifty-eyed metals-industry executive on CNBC suggests that there are people and products behind the symbol on your desktop, that somewhere tropical heat bare-chested exfarmers are digging metal deposits out of ex-forests. This may in fact be the case, but it has nothing to do with you. The chart of the mining company's stock, if extended back far enough, tells a complicated story of its long-term relationship with its workers, its customers, and its investors. But remember-you are not a worker or a customer. Unless things go very wrong, you are not an investor, eithAnuff, Joey is the author of 'Dumb Money: Adventures of a Day Trader' with ISBN 9780375503887 and ISBN 0375503889.