Columns

Of sentiment and stocks

Ross Laver March 27 2000
Columns

Of sentiment and stocks

Ross Laver March 27 2000

Of sentiment and stocks

Ross Laver

Joe Kennedy, a legendary speculator and patriarch of Americas unofficial royal family, knew it was time to get out of the stock market in 1929 when a shoeshine boy offered him some stock tips. Today, a similar eve-of-destruction feeling can be had merely by wandering the halls of the typical office building and adding up the number of ordinary Joes —account managers, systems administrators and, yes, journalists—who spend long stretches of the day staring into a computer screen, checking stock prices and furtively trading shares on company time.

Fortunately, there’s no law that says stock market meltdowns are inevitable just because a significant slice of the population is trading actively. If there was, the U.S. market would have crumbled a long time ago.

Still, the more people become convinced that cycling in and out of stocks is a sure route to easy riches, the more vulnerable the market becomes to a sudden and unexpected shift in sentiment. And in that context, it’s surely worth pondering the ways in which technology has, in the span of four or five years, transformed the art and science of stock trading.

We’re not talking here about the mania for tech stocks, although obviously that’s an important part of what’s been going on. One of the rallying cries of enthusiastic investors down through the years has always been, “This time it’s different.” Those who cling to that view today mean, in effect, that computers and assorted other new technologies have boosted productivity, and made it possible for the economy to grow faster for a sustained period without overheating. In the States they call this the “new paradigm theory,” and there’s nothing like it to trigger a furious debate among otherwise dispassionate economists and policy-makers.

In one sense, though, it’s obvious that things really are different this time. Whatever its implications for productivity, technology in the form of the personal computer and the Web has enabled legions of unsophisticated investors to play what amounts to a high-stakes video game. In Joe Kennedy’s day, you couldn’t buy or sell a share on a public exchange without talking to a broker and forking over a sizable commission. And unless you stood outside the exchange all day or were rich enough to have your own personal stock ticker, it was physically impossible to follow the day’s trading action in your favourite shares.

In the past five years, all that has changed. Discount brokers charge a flat $30 or so per online trade, regardless of the

number of shares, and far less than that in the United States. The Web has also made it possible for amateur investors to tap a wealth of free market information—up-to-the-minute stock quotes and charts, detailed trading reports and all sorts of arcane statistical data.

All of this has created a fertile breeding ground for speculation. The other week, while waiting in the lobby of a downtown office building, I overheard two shaggy young men, evidently students, swapping stock tips about firms they plainly knew nothing about. (“It’s this, uh, cool biotech company and my roommate says it’s got some kind of, like, cure for cancer,” volunteered one, as the other nodded sagely.) Later the same day, on the subway, I found myself standing next to another unlikely pair of high-rollers who were congratulating themselves on having made money from the current frenzy for companies targeting business-tobusiness e-commerce—B2B, for those in the know. They didn’t look like shoeshine boys, but you can never tell.

The more popular online trading becomes, the more the run-of-the-mill corgi porate office begins to resemble a high! tech trading floor. Taking advantage of s their employers’ high-speed Internet connections, millions of workers across North America now monitor their stock portfolios from their desktops, summoning up charts and scanning financial news for prospective investments. Some surveys suggest that almost one-third of online investors do their trading at work. That may understate the situation: so far this year, Canada’s major online brokers have experienced daytime trading volumes at least three times greater than in the same period a year earlier. “I wouldn’t want my boss to know I was trading during business hours, but maybe if he paid me more I wouldn’t have to,” said one 31-year-old marketing consultant. Online trading, he added, “is addictive— kind of like a contest that requires skill and good timing.”

By the way, the name of Joe Kennedy’s stock-happy shoeshine boy was Patrick Bologna. The hapless bootblack was wiped out in the Great Crash of 1929, but continued to polish shoes on Wall Street for many years afterward. One of his three children, William Bologna, grew up to become an advertising man, but is now chairman and CEO of Columbia Laboratories Inc., a small Miami-based pharmaceutical company that has lost money in 11 of its 12 years but whose shares have quadrupled in the past year. A sign of a market top? Naw. This time it’s different.