The Day Traders: The Untold Story of the Extreme Investors and How They Changed Wall Street Forever
By Gregory J. Millman
(Random House, New York, 1999, 288 pages, $25. )
Everyone who thinks that day traders are vermin who should be squashed should read this book.
Everyone who thinks that day traders are revolutionaries, who are attacking a venal, dying order of big brokerages that will soon be consigned to the ash heap of history, should read this book.
Everyone with even a minor interest in trading should read this fascinating book.
One of the benefits of this book is that the writer, a journalist and business author, chronicles both the successes and the disasters of day trading. He talks both to its Horatio Algers and the regulators who swear – without credible and complete documentation – that most people who enter the field are being rooked.
A Texas securities commissioner brags: "This agency has never given a clean bill of health to any day-trading firm."
Actually, I am inclined to believe the regulators have their points. However, I also believe that many of the early entrepreneurs who risked capital on factories and railroads lost a hell of a lot of money before they got the trains to stop running off the tracks.
Extreme Investing
Millman refers to day trading as extreme investing. He defines it as for those who forget "about studying companies…or even knowing what they make or do, or whatever their price was yesterday. This is only about what's happening right now, in the market on the screen."
A day trading firm seems to be typically run by someone with a chip on his shoulder; someone who has declared war on market makers because they tried, and failed, to crush the firm.
Marc Friedfertig, co-founder of Broadway Trading, exhorts recruits trying to learn day trading: "Every dollar you take out of the market is a dollar you have to take away from someone else who wants it badly. Someone bigger than you, who doesn't like you and doesn't like what you're doing and wants to screw you if he can. Market makers don't like us!"
Day trading – for good or ill – is inevitable in an electronic age. The market makers will have to swallow their high-blood pressure medicine and learn that the Luddites – the violent groups that thought they could burn the early factories to the ground – will lose every time.
The complaints made by market makers, regulators and big brokerage officials in this book may have some merit, but they seem irrelevant. The complaints remind me of the complaints made by executives of big news media outlets who don't like the Drudge Report. They remind me of a segment of that silly show "60 Minutes" in which that poor fish Lesley Stahl learned that anyone – oh, my God anyone! – could start up a web page and begin their own news service. They could write anything they wanted, true or not, and no one could stop them! Mon Dieu! The first amendment in cyberspace!
All of a sudden far fewer people want or need "60 Minutes," "CBS News" or the rest of the arrogant bunch in New York or Washington with their blow-dried doos. Entry into the market had become incredibly easy because of the Internet.
Big brokerages, market makers, the regulators and other big shots of the trading world are learning the same painful lesson as the suits at the big media. Technology is the enemy of the established order, which usually has big fix costs and assumptions of perpetual rule over the rest of us.
One thinks of the brokerage big shots the way one thinks of the large, aristocratic landowners of England at the outset of the industrial revolution. They had ruled for centuries. They couldn't imagine that a bunch of grimy factory owners – none of whom seemed to have the word lord in front of their names – were a rising political and economic power. They fought feverishly to stop a few of these blasted upstart capitalists from getting the vote in 1832. Most of the agricultural barons, who lost that battle, never knew what hit them.
And that's what one feels reading Millman's "The Day Traders," the established order, once again, insists on putting more fingers in the dyke. It's going to lose because the Internet is not only changing the way we play and conduct business – it's changing how we think about work and play (i.e. some see extreme investing as a delicious form of play, a way of going to Atlantic City without taking a trip).
One leaves this book not so much a fan or an opponent of day trading so much as simply acknowledging that it is here to stay. It is not that reading "The Day Traders" makes me want to sign up for boot camp or lust for the insult of some stressed out IR professional for a market maker who will brand me "a roach" (I've already enjoyed that favor under different circumstances).
Instead, this book, I believe, establishes – in an objective manner – that extreme investors are as much a part of our American business landscape as the people who bet big money on football games or buy tickets for state lottery games that are heavily weighted against the poor schmuck who buys them every week.
If anything, one rises from Millman's book thinking that day trading is very difficult, but still gives the right trader a much better chance than rigged games run by our masters in state capitols.
Sorry, Lesley. The genie can't be put back in the bottle. They'll build more factories if someone burns them down. Drudge, as well as the many others who are aping him, are here to stay.
So is day trading.
