Excerpt from The Total Package, Chapter 5

It wasn’t too long ago that many scoffed at the idea of using the Internet as a place to research investments and as a place to invest your hard-earned money. Total on-line investment assets grew from $200 billion in 1998 to over $1 trillion in 2000 (eCommerce News, May 5, 2000). While the economic downturn of the early 2000s and the impact of terrorism had a negative effect on the short-term growth of on-line investing, prospects for future growth are still very good. According to J. D. Power and Associates (July 2001, Future Online Market Penetration Study), the number of online investors will nearly double in 2002. The number of “heavy traders” (traders conducting 36 or more transactions per year) will grow by 20% by 2002. A majority of the new heavy traders who will start trading on-line by 2002 will be “Generation-Xers” (born from 1962 to 1975).

While the long-term growth of on-line investing looks promising, it is also true that not everyone wants to spend the many hours it takes to conduct effective investment research on-line. Scores of investors learned the hard way during the market downturn and economic recession of the early 2000s, particularly those investors who found it “oh so easy” to buy high-flying technology stocks with the click of a computer mouse. As we found out later, many of those high-flying technology stocks crashed to the ground, taking investors’ money right along with them.

Stories of business executives losing their multi-million-dollar pensions and housewives wiping out the children’s college tuition via day trading are not only true, they’re downright terrifying. The Council on Compulsive Gambling in New Jersey estimates that 5% of all day traders are addicted gamblers who aren’t in it for anything but the thrills. In the June 21, 1999, issue of Investment News, Ed Looney, executive director of the Council, estimates that 20% of day traders are unable to handle or control their day-trading activities. Some of these “addicted” traders use equity lines of credit on their homes and cash advances on credit cards to buy stock on-line. Their uncontrolled addictions can have dire financial consequences for themselves and their families. Day trading is very serious business and should always be undertaken with a reasonable and rational mindset.

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