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[The Industry Standard's Media Grok - August 30, 1999]
Online Investors: Revolutionaries or Rubes?
The bulls who run the streets of Pamplona look mighty and no doubt feel fierce. But they are on their way to a slaughter.
Take that as a metaphor for two stories that appeared in the San Jose Mercury News over the weekend, both of which debated the future of online trading. On Saturday, Jonathan Krim told a familiar Net story wherein "upstart competitors who are more nimble, have more accessible technology and provide faster, sometimes cheaper service" force the dinosaurs to get online or go under. Krim explained how online brokerages and electronic communications networks have forced the big exchanges to consider evening hours and abandon their cooperative roots for corporate structures and IPOs. He found a Forrester analyst to preside over the bloated bodies of these august institutions and declare that traditional stock exchanges "are dead."
Nonsense, replied Merc scribe Mark Schwanhausser in an article posted on the site Sunday evening, which portrayed day traders as just the latest crop of rubes to be wooed into the tent. All the online investing tools and information services just deliver investors more readily to a slaughter by more savvy professional traders and their established institutions. "Despite all the swaggering talk about how technology is leveling the playing field, the rules of the game remain fundamentally unchanged - and the vast majority of investors remain outsiders looking in." Even Krim's article, toward its end, hedged that "investors are fooling themselves if they think these new systems give them equal footing with the big market-makers."
Schwanhausser reminded readers that online trades aren't immediately executed, but passed off to dealers, who have their own agendas. "In reality, the day trader who anticipates a wave of buying might be playing into the hands of a large institutional investor," he wrote. "The Internet has given them the illusion that they are the player."
No doubt those illusions are nurtured by the online brokerages' TV commercials that suggest the Internet will make millionaires of tow-truck drivers and bartenders. Those ads, CBS MarketWatch's Emily Church wrote on Friday, are part of the rising cost of acquiring customers by the online brokerages. A report out of Lehman Bros. last week cautioned investors about these rising marketing and acquisition expenditures by E-Trade, Ameritrade and other brokers, Church wrote, and the news may have pushed their share prices down on Friday. Hey, those bulls don't come cheap.
Online Investing Turns Trading Upside Down http://www.sjmercury.com/business/top/058008.htm
The Risks of Online Trading http://www.sjmercury.com/business/top/017081.htm
E-Trade, Ameritrade Cut on Ad Costs http://cbs.marketwatch.com/archive/19990827/news/current/egrp.htx
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