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Volatile day-trading called gambling

NASHVILLE, Tenn. (BP)–The game doesn’t involve rolling dice or dealing cards, but day-trading is gambling by any other name, a host of experts on the stock market say.
Day-trading — the high-pressure avocation of Matthew Barton, who killed his wife and two children and then nine people in two Atlanta investment firms July 29 before committing suicide — is the rapid-fire buying and selling of shares of stock to capture small upward ticks in stock prices to seize quick and sizable financial gains.
“These traders don’t bet on who’s gonna win a race; they bet on who’s gonna be in the lead after half a lap,” mused Jerry Knight of washingtonpost.com in an on-line discussion July 30.
The meteoric rise in volatile Internet stocks like Yahoo and Amazon.com has made it easy for many to seek quick profits in intense direct-access trading sessions. Stock analysts indicate many of the wild swings common among such technology stock offerings can be traced to trading by these rebels who shun traditional Wall Street admonitions to buy and hold for the long term.
“Day-trading offers risk-takers one more way to risk everything for the big score,” said Barrett Duke, an authority on gambling for the Southern Baptist Convention’s Ethics & Religious Liberty Commission. “The day-trader expects to make large sums of cash in an extremely short period of time by betting on the mood of the market. While that’s not as reckless as betting on a number on a roulette table, it is, nevertheless, gambling.”
“We call it the gambling addiction of the new millennium,” Edward Looney, executive director of the Council on Compulsive Gambling of New Jersey, said in USA Today Aug. 2. Day-trading is “fertile ground for dangerous compulsions,” Looney said, “because day traders place big bets on small, short-term swings in stock prices.”
With the lure of instant wealth has come a flood of eager investors who post large amounts of cash as surety in transactions with no consideration for the value underlying a stock, instead being consumed with its potential for upward movement.
And this feverish compulsion to beat the odds, getting in and out of a stock purchase at exactly the right moment, remains insatiable. One industry research group estimates that on-line trading has more than tripled since 1996 and will nearly triple again by the year 2002. On-line trading accounts for 14 percent of all equity transactions in the market, reports www.thestreet.com, an Internet investors’ daily.
Valerie Lorenz, director of the Compulsive Gambling Center in Baltimore, in the USA Today story Aug. 2, compared day-trading to slot machines: “It’s fast action, constant action, total involvement, and there is an immediate payoff. It’s pure gambling. When they lose, it is not just a loss of money, it is a loss of self-esteem and self-assurance.”
Just as the gambler who travels to the casino cocksure he has developed the strategy to beat the house, the attraction of effortless wealth in the trading of securities is intoxicating. It is the better-educated, more affluent traders who think they come with “a strategy, a protocol, a methodology to this day trading that will inoculate them from risk or extreme loss,” said James Marlen, a Dallas securities lawyer in The Wall Street Journal Aug. 2.
Yet reality argues otherwise. Most traders lose money. USA Today reported a complaint filed by the state of Massachusetts against Block Trading, a firm catering to day-traders, alleged that only one of 68 accounts in the firm’s Boston office was profitable.
Wall Street patrons insist there is a big difference between the efforts of day-traders to ride the minute-by-minute gains of a particular stock to overnight prosperity and the labors of traditional stockbrokers to build profitable portfolios for the long haul. And the ERLC’s Duke agrees.
“Day-trading represents the abuse of a system of equity investment that gives ordinary people the opportunity to invest their hard-earned money in the financial strength of the world’s businesses. Stock market investing is a legitimate way to make your money grow — for the long term in companies that demonstrate the promise of sound financial growth.”
Securities and Exchange Commission Chairman Arthur Levitt Jr., to those who consider day-trading a form of financial “speculating,” told The Washington Post in a July 31 article, “Personally, I don’t think day traders are speculating because traditional speculation requires some market knowledge. They are instead gambling, which doesn’t.”
Day-trading firms provide a direct connection from the investor’s computer over the Internet to the trading computers of the stock exchanges. This practice eliminates the middleman broker and allows the investor the same ability to trade as the bigger, established brokerage houses, but without the collective wisdom of the brokerage house.
“The closer one gets to purchasing stocks based on market conditions, rather than on sound economic strategies, the closer one gets to gambling,” Duke said. He noted the day-trader is at the whim of many various and sundry influences upon the market as well as something so simple as the failure of a modem connection.
“Day-trading is undoubtedly a step over the line from investment to gambling,” Duke said.
Day-trading has transformed the stock market into “an invisible nationwide casino where [traders] can play the odds without having to venture to Atlantic City or Las Vegas,” reported the Feb. 25 Washington Post in an exposé of the practice.
“These people are not investors. They’re gamblers,” stated Robert Bontempo, an associate professor of management at Columbia University’s business school, in the Aug. 2 Wall Street Journal.
“Calling this investment is totally missing the point,” Bontempo said. “It’s a casino and to be surprised when greedy, desperate people lose all their money, and then snap, I mean who are we kidding? Why should we surprised by that?”

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  • Dwayne Hastings