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News
The lure of online investing
May 14, 1999: 5:34 p.m. ET

Some individuals enjoy the freedom, but some feel they have been burned
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NEW YORK (CNNfn) - Brian Auster, a first year resident at Brockton Hospital near Boston, may be the best connected doctor around.
     "I admit the patients and manage the patients using a program on the laptop that helps the whole charting process" he said.
     During breaks, the 27-year-old Auster also dials up the Internet and manages his stock portfolio, right from the doctors' break room. He checks his stocks, he said, "maybe once or twice, like around noon or something, around lunchtime, then and maybe sometime in the afternoon."
     Then, at home, Auster invests with his fiance, Rosemary Connolly. Together, they prowl for investment leads. Connolly, who works as a Marilyn Monroe impersonator and even has her own Web site, makes her own online investments.
     They're only investing money they can afford to risk, around $12,000. "I doubled my money since I started with it, um, you know, about a year and a half ago," Connolly said.
     Auster and Connolly are part of the stampede of investors buying on the Internet, the majority of whom are male, under 40, with an above average income.
    
Surge in popularity

     "It's actually the most popular financial services product in the history of the business, " said Julio Gomez, a consultant to online brokerages. "We've gone from a standing start of zero to now over seven and a half million online brokerage accounts in just four years."
     That 7.5 million accounts is just less than 10 percent of the 80 million stock accounts in the U.S.
     But studies show investors who trade online are more aggressive, making an average of 20 trades a year. That wave of activity is propelling the online industry, and to a degree the economy itself.
     Auster is one of those aggressive investors. He has put most of his money into Internet stocks like Yahoo! (YHOO) and Intel (INTC).
     "You can't do what this country needs to do in this next century without what online investors are doing right now," he said. "They're making it possible for tons of capital to enter into the market to finance the growth of the Internet."
     He and Connolly make one or two trades a day. They can afford to be active traders, because online transactions are cheap, as little as $5 to $10 per trade, compared to hundreds of dollars through a conventional broker.
     "If I wasn't online, I wouldn't be able to make transactions at such a low commission and be able to take advantage of small fluctuations in stocks," he said.
     And if the nine-year bull market suddenly crashes? "I buy things that I'm interested in keeping for the long term if I had to do that. So if I bought something and the market was to crash the next day, I would feel confident that what I owned was good and that I would hold for a while."
     Someone who shares that philosophy is Brian's mom, Marsha Auster. She and her husband Mitchell have used a stockbroker for years. But last October, she followed in her son's financial footsteps.
     "It started with Brian. He was the one who got me excited about doing it," she said.
    
Women taking the plunge

     Marsha Auster, who works as a middle school counselor, is among a growing number of women taking the plunge into investing. Like her son, she's taken to checking the market during breaks at work. Her portfolio is modest, a couple thousand dollars to start, in stocks like eBay (EBAY), Cisco (CSCO) and Microsoft (MSFT).
     She said she tries to ignore short-term fluctuations in the market. "That's how you can get yourself crazy, 'cause you have to worry about it all day long," she said. "When it's up and down every day. … I mean, I'm thinking AOL 's (AOL) something I want to hang onto, so what's it going to be like in a year or two, not like every five minutes."
     It should come as no surprise that investors using computers and the Internet to execute trades are largely attracted to high tech stocks like those listed on the Nasdaq, which shot up, on average, nearly 40 percent last year.
    
Potential for problems

     But as online investing continues to grow, so does the potential for problems and technical glitches. In fact, the Securities and Exchange Commission last year reported a three-fold increase in online-related complaints.
     Eileen and Wayne Allan of Maple Valley, Wash., learned firsthand the perils of investing online.
     "We're not new to the stock market. We had, you know, purchased stock in the past through a broker," Wayne Allan said.
     But they wanted to try it on their own, so they signed up with Ameritrade (AMTD), at first making small purchases. Then Eileen Allan went after one of the hottest and most volatile Internet stocks, Amazon.com (AMZN).
     "I picked Amazon because Amazon had just had a split and the split took the stock down quite a ways where I saw that I could actually purchase it," she said.
     She got more than she bargained for.
     "I ordered 13 shares and the price quoted was 186, and so I placed an order. And when I went back to check on it, it was 186 shares at $190 a share," she said.
     She tried to cancel the order, but it had gone through in just 42 seconds.
     "And when I phoned them, the representative that I talked to looked it up and she says, 'They're yours, you ordered them, they're yours.'"
     The Allans believe Ameritrade's Web page somehow transposed the number 186, so instead of 13 shares, she got 186 shares -- more than $35,000 worth of stock, even though her account had just $2,500 in cash.
     Wayne Allan tried to tell Ameritrade it was an obvious mistake.
     "Look at her history. She buys five shares of this, two shares of that, 10 shares of that. The woman has never bought more than $500 of anything since she's been with you guys," he said.
     The Allans had to dip into their retirement funds to cover the trade. Thirteen days later they sold the Amazon stock, after the price plummeted by nearly half. Their loss: $17,000.
    
Broker: No mistake here

     Joe Ricketts, chairman of Omaha-based Ameritrade, says it's impossible for numbers to become transposed on the Web site. He says a trader has the leeway to approve orders, based on a customer's history, even if there isn't enough cash in the account. According to transaction logs, that's what happened in the Allans' case. Still, Ameritrade insists there was no mistake, that the order was executed fairly and accurately.
     "When we're wrong, we tell the customer we're sorry and we pay for it. When we're not wrong, the customer, in all fairness to our shareholders, as responsible managers, the customer has to pay for their own mistakes," Ricketts said.
     The Allans took their complaint to state and federal regulators, even consulted an attorney.
     The Allans' case is extreme. Most complaints about online investing come from brokerage systems overloading and breaking down. Customers say they've actually lost money because they couldn't buy or sell when they wanted to, when the market was hot. Some have filed class action lawsuits to recoup their losses.
     "Things go wrong. Markets go up, markets go down, technology doesn't always work," said Marc Beauchamp, of the North American Securities Administration Association. He said the convenience of online trading is a double-edged sword.
     "The technology has been phenomenal. It's done great things. It has democratized information, it's brought trading prices down incredibly low, but, you know, you have to decide for yourself whether you're an investor who wants to shoulder that responsibility, or whether you'd rather spend your time doing something else."
     For Eileen Allan, the decision was easy. "I will not invest online until all the problems get resolved and it becomes a lot more secure for the consumer. I don't even want to go near it."
     The growing numbers of online traders, and complaints, prompted a rare warning from Securities and Exchange Commission Chairman Arthur Levitt, who noted it's "just as easy, if not more, to lose money through the click of a button as it is to make it."Back to top

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On-line investing surges ahead - April 5, 1999

Big brokers' Net woes - Feb. 26, 1999

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Securities and Exchange Commission

North American Securities Administration Association


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