The Big Score THE AMERICAN DREAM IS NO LONGER ABOUT MAKING A GOOD LIVING, IT'S ABOUT HITTING THE JACKPOT. THE METHOD: MOVE FAST, TAKE RISKS, CASH IN QUICK. (BUT WHAT IF YOU GET LEFT BEHIND?)
By Peter Carbonara

(MONEY Magazine) – I'm not sure when it first dawned on me. It may have been the day last winter when I noticed the slogan on a CNBC billboard: "You snooze, you lose."

Or it may have been the response I got to a story I wrote in this magazine about a day-trader in New York City who was selling tips on highly volatile Internet stocks. One of the many people who called me wanting to know how to sign up was a grandmotherly woman from Georgia. I warned her that the tipster was being investigated by the Securities and Exchange Commission. Was she still interested? Yes, she said. Definitely.

Or it may have finally come this spring, when an Internet company where a friend of mine was working went public. The stock promptly rose something like 400%. I looked up its SEC registration statement, saw the number of options my friend had and multiplied that by the stock's latest price. It was all only on paper, of course. But it was still a lot of money. Reading magazine articles about people in Silicon Valley is one thing; actually seeing it happen to someone you know is another. It's a rush of raw envy, like seeing the sweepstakes van come down your street--and then pull into the driveway next door.

Is it just me or does it sometimes look as if practically everyone in America is getting rich? Somehow we seem to have entered a period not just of prosperity--that's been going on for nearly a decade now--but of frantic, sudden, extreme prosperity. Call these the Lottery Years, or maybe call them the Ka-Ching! Years, a time when America hears, or thinks it hears, the bells of a million cash registers going off. When little old ladies in Georgia will pay fast New York City operators for online trading tips, it seems to me that we've hit some kind of cultural watershed.

What it all adds up to is a little hard to say. But by this past spring I was reasonably sure that whatever was happening was tied up with the ferocious bull market and its most exciting and volatile sector, the Internet. They had combined to turn us into not only a nation of stock watchers but also, in some sense, a nation of traders. Not only did more people than ever before own stocks, but the culture of trading--fast, anxious, aggressive--seemed to have percolated far beyond Wall Street. Sometimes it seemed that we liked the New World and were exhilarated by the speed of the action and the chance to make big money. At other times we were nervous about its uncertainties and its frantic pace.

This past summer I made a few trips to places that seemed to be hot spots in that revolution, places where the whirlwind had touched down and left some kind of mark. I didn't set out with any illusions that I could interview a few dozen people and define the mood of the nation. But I did hope that I might be able to gather some useful clues or at least understand why I was oscillating between a desire to cash in and a dread of being left behind. I kept reading and hearing and thinking that we were living in a gold rush. If that were true, I thought, it would be worth meeting some actual prospectors to see for myself what they'd found.

CANCUN, MEXICO IT'S ALL IN THE CHARTS

Trading used to be something that we were content to leave strictly to the pros. Who else had the means or the money to do it? And who else would willingly sit and stare at a screen full of dancing numbers all day, every day--even for money? More people than you might think. Now that the Internet has made anyone with a PC and a modem a potential trader, a variety of industries have sprung up to serve their needs and feed their fantasies. Other hobbyists and wannabes have long had their retreats and seminars--tennis camp, for instance, or fantasy baseball weekends where you can take batting practice with the pros. Amateur traders now have theirs. In June, I spent a few days at one in Cancun on the theory that if we were becoming a metaphorical nation of traders--money-obsessed, anxiety-ridden free agents--then maybe people who wanted to be literal traders might tell me something about where the rest of us seem to be headed.

I was hoping to meet a few real lunatics, maybe some day-trading kamikazes. Instead, the two dozen or so small investors who came from around the country--a few retirees, a marriage counselor and his wife, two pharmacists--seemed distressingly rational. So was the organizer and main attraction: Alexander Elder, an owlish and wry Soviet emigre psychiatrist who now lives in New York City. An enthusiastic convert to capitalism, Elder's life now revolves completely around the financial markets. Out of a cramped office in Jackson Heights, Queens, he sells a variety of financial books via the Web, organizes seminars about the markets, and trades his own account. He's also written a few books himself, one of which, Trading for a Living, begins: "You can be free. You can live and work anywhere in the world. You can be independent and not answer to anybody. This is the life of a professional trader."

Sounds pretty good. But like any other game of skill and chance, you can't play if you don't know the rules, and that's what the group in Cancun had paid $2,900 each to learn. For that, Elder gives them a liberal dose of his own psychological take on the market ("Being a trader is a journey of self-discovery") and a series of pep talks on the importance of money management (for example, never betting more than you can stand to lose). But the real meat of his program is what Wall Street calls "technical analysis," which is the practice of discerning patterns in price charts. If you know how to read a stock's chart, the theory goes, you can predict its future price moves with some rough accuracy.

Wall Street has long been split on technical analysis, with some pros dismissing it as superstition and others embracing it as science. Whether or not it actually works, though, it's hard to think of anything more mind-numbing than sitting in a conference room studying stock charts. Even if that conference room happens to be in Cancun. Wouldn't people who want to make quick money--like my phone acquaintance in Georgia--rather just get hot tips instead? As I quickly learned in conversation around the hotel bar, many of Elder's "campers" had already been through that, having tried and abandoned a series of stock tipsters and gurus. More important, the attraction of technical analysis for most members of this group was not primarily intellectual; it was emotional. The campers had plenty of horror stories about getting whipsawed by a market that went down as quickly as it went up. These were people who had been burned and were looking for some kind of reassurance before they went back out there again.

Carol Gillot, for instance, an artist and illustrator from New York City, had been trading only since January. She'd taken about $70,000 she had earned from the sale of an apartment in Greenwich Village and put it into a variety of hot Internet and technology stocks, among them high fliers like Amazon.com and CMGI. "I had beginner's trading luck," she said. In about three months she almost doubled her money. Then in April, Internet stocks sold off, and most of Gillot's paper profits disappeared. What she came to Cancun to find was a system, a method to prevent that from happening again. And technical analysis, with its fundamental belief in an often subtle but nonetheless detectable order beneath the surface chaos of the market, was supposed to be it.

So did Gillot get religion in Cancun? While a few of the other campers pronounced themselves delighted with Elder, Gillot later told me that she found his presentation too rambling and theoretical to be useful. When I last spoke with her late this summer, the stomach-churning dives in high-tech stocks had forced her to the sidelines; she was licking her wounds while waiting for a ripe moment to get back into the game. Gillot was "paper trading"--practicing without actually putting any money at risk--but technical analysis, she said, wasn't turning out to be "the answer." So she was reading everything about the market she could get her hands on and planning to go to another traders' convention in California. She'd had a taste of easy money. She wasn't giving up the search for more.

LAS VEGAS EVERY MAN FOR HIMSELF

I didn't have the time--or the patience--to stick out an entire week of chart reading, so I left Cancun after just a few days with Alex Elder and his campers. I wasn't entirely sure how I felt about them. On the one hand, they were pleasant, apparently sane people who denied being motivated by dreams of getting rich fast. And they had come to Cancun, after all, to learn strategies and techniques for methodical, prudent trading. But was there anything really prudent about trying to be a trader in the first place? For all of Elder's talk about discipline, they were motivated by a kind of low-grade financial fever, a whiff of mania. Carol Gillot had enjoyed a run of amazing luck, racking up returns on paper of nearly 100% in a matter of weeks. Then most of it was gone. It was like almost winning at blackjack.

Traders are generally adamant that what they do isn't gambling. Still, the similarities were on my mind as I traveled directly from Cancun to Las Vegas, the site of June's Money Show. The show (not affilitated in any way with this magazine) is an investment industry trade fair, a kind of combination boat show and self-help symposium for small investors that's held a few times a year in various places around the country. This past June it took place at Bally's, a somewhat downmarket casino and hotel on the southern end of Vegas' fabled Strip. The show consists primarily of an exhibit hall filled with booths from dozens of companies--ranging from the sober to the preposterous--all seeking their cut of America's investment dollars. This is supplemented by a series of presentations and lectures by financial pundits such as Harry Dent, author of bestsellers like The Great Boom Ahead and The Roaring 2000s, and star fund manager Garrett Van Wagoner.

If there was a certain chastened spirit among the would-be traders in Cancun, the official mood in Las Vegas was one of hysterical optimism. There were several day-trading entrepreneurs who tempted the crowd with tales of big money while occasionally making noises about the risks. Among the more flamboyant was Harvey Houtkin, head of All-Tech Investment Group, a day-trading operation with headquarters in Montvale, N.J. Houtkin is a short, bearded, pugnacious man with glasses and a Jersey accent. I met him about two months before a gun-toting day-trader went berserk at the All-Tech office in Atlanta. Standing in front of All-Tech's Money Show booth, Houtkin showed me his company's software on a laptop. Essentially what it does is connect your account directly to the Nasdaq, allowing you to buy or sell stock instantly with a click of the mouse. The main appeal of this, Houtkin said, is that it allows you to bypass the brokers and other Wall Street types he regards as worse than scum. "They're completely corrupt," he explained, "and it's the worst kind of corruption because they don't know they're corrupt." Houtkin then described his vision of a dawning age of 24-hour electronic trading, one in which most participants are not banks or brokerage houses but small investors at home in front of their PCs.

This was supposed to be a happy picture of militant financial do-it-yourselfers taking their money back from the big boys. But it struck me a bit differently. There was a quality of financial Darwinism, of "every man for himself and the market against all" to it. Who, after all, wants to have to think about their money all day and night? If it's true, as Houtkin says, that we can't trust Merrill Lynch and Fidelity to look out for us, then we would have no choice but to look out for ourselves--which in the brave new financial world that he's promoting means spending a significant part of our lives sitting in front of those screens, clicking, clicking, clicking.

SILICON VALLEY SHOUTS FROM THE CRAPS TABLE

Cancun confused me, and Las Vegas depressed me. The picture that was starting to form in my head was of some kind of "Day-Trader Nation," a country of people for whom the markets had become the primary source of both amusement and anxiety, all of them staring at their Level II and E*Trade screens 24 hours a day. All of the people I had met were caught up in that, to different degrees, and none of them--with the possible exception of Alex Elder--seemed to be having much fun. I wanted to meet people who might actually be getting some pleasure out of the pursuit of wealth. So I went to Silicon Valley.

The mental picture I had of life in the Valley had been formed largely by all those stories in Wired magazine about twentysomething Internet millionaires, intense and visionary nonconformists who were a) making tons of money and b) having the time of their lives. When they weren't staying up all night slaving over code that would transform civilization as we know it, they were snowboarding in Tierra del Fuego. No doubt those people really exist, but the folks I met were both less wealthy and more mundane--which is not to say they have no excitement in their lives.

Troy Otillio, for instance, is a software engineer. A few months ago he quit work at Documentum, a maker of document-management software, and moved to Ariba, a hot e-commerce start-up that went public in June. He says, "I always compare Silicon Valley to a casino. You have the people at, say, Hewlett-Packard. They're playing the slot machines. Low risk, low reward. But every once in a while you hear a shout from the craps table. And then it gets very hard to go back to the slot machines. It's just not exciting enough."

The excitement comes from working hard on something new; it also comes from stock options. If the company turns out to be a success, those options can be worth a lot of money. On June 23, for instance, Otillio's employer, Ariba, went public at $23 a share. By the end of the day the shares were going for $90. They have since been as high as $157. Now, options are not quite the same as free money--there are usually vesting schedules and lockup periods that restrict when and how you can use the options. Otillio is only rich in that peculiar '90s way--"on paper." But being rich on paper is, of course, a lot better than being poor on paper.

The Internet boom has led to a huge number of companies being started in Silicon Valley these days, all of them using pre-IPO stock options as bait to attract talent. It's been hot out here before, but the general consensus is that it's never been anything like this. Indeed, the demand for talent to staff all of those companies is so great that it sometimes seems the only thing that anyone with the requisite software design or marketing skills need do is stand still and have money showered on them. The options game, though, is not entirely without risk. For one thing, Internet start-ups, particularly those with any prayer of taking off, involve a lot of long hours and a lot of hard work. And Otillio could have picked wrong and gone with a loser company--most software and Internet start-ups fail and go under long before they ever make it to the stock market.

Or he could simply have stayed where he was. Part of Otillio's decision to change jobs was due to the fact that his previous employer, Documentum, has seen its stock price fall from a high last year of around $60 to a low of about $10 this past spring. That depressed the value of Otillio's Documentum options, which he had hoped he might be able to cash out for as much as $1 million. Like Carol Gillot with her quick trading gains, Otillio had the decidedly unpleasant experience of seeing his paper profits soar and then collapse. For him, landing a job with a hot pre-IPO company like Ariba was not only about hoping to hit it big. It was also about trying to recoup his losses and keep up with his friends and peers. He says, "It's the era of the gold rush, [but] you don't want to be stuck at a dead mine. I mean, I don't know how long this is going to last."

And he definitely didn't want to wind up like someone he knew who turned down an offer from Ariba to stay where she was. As news of the company's skyrocketing IPO quickly got around the Valley, Otillio says, she left work early and in tears.

MILL VALLEY, CALIF. A DREAM HOUSE IN THE DISTANCE

That last image rang pretty loudly in my head. In a way it's the worst financial nightmare of the late '90s--having a chance to hit the Big Score, actually getting within smelling distance of some real money...and then blowing it. My own personal fear is that all this prosperity is going to stop--as someday it must, no matter what Harry Dent says--and I will not have gotten my hands on any of it. I can easily imagine my son, 20 years from now, hearing me complain about college costs and asking why I didn't get rich back in the Roaring Nineties like all of his friends' fathers.

While I was in Silicon Valley, I met some other people who wanted to avoid having the same conversation one day with their kids. One of them is Andy Lewis, a headhunter in the Mill Valley office of Management Recruiters International. What he has done for a living for the past nine years is place people like Troy Otillio (who is not a client of his) in jobs at technology and software companies. When he started in the early '90s, the high-tech economy in California was deep in recession and the job market was ice cold. But last year he made 50 placements and generated $800,000 worth of commissions out of the Mill Valley office's $2.7 million total. He got to keep about $400,000 himself.

What Lewis and his colleagues do, essentially, is call people with jobs at high-tech companies and tell them about the better and more lucrative jobs they could have somewhere else--particularly at pre-IPO companies. Andy Lewis makes a lot of money because he's good at what he does, which is finding talent for talent-hungry companies. But he's smart enough to know that there is a component of luck to his success. When he started out, Silicon Valley was dead. "Now," he says, "the market is out of hand. They're desperate for people."

David Levinger is another headhunter at MRI's Mill Valley office. He's been in the recruiting business for just under two years, concentrating on placing people in Internet companies in the currently red-hot e-commerce sector. Like Lewis, he's good at his job (one satisfied client whom Levinger placed at a pre-IPO company during the summer says, "David is a bulldog"). He also knows he's a participant in a gold rush: "I'm fortunate that I walked into the right situation at the right time."

Levinger's dream is to earn about $500,000 with which he could build a house in Stinson Beach, just north of San Francisco. That's a long-term goal, something Levinger wants to do someday. The market is so hot these days, though, that a lot of people in and around Silicon Valley have seen their long-term dreams come true right now. Levinger doesn't have his 500 grand yet. But less than two years into his career as a headhunter, he says, "I can see it."

NEW YORK CITY HOW FAST IS TOO FAST?

I hope Levinger makes it. Although the rank and file in Silicon Valley regard headhunters as--at best--a necessary nuisance, he and Lewis struck me as nice guys who provided an actual service. And if they had lucked into a gold mine, they were still working pretty hard to get the stuff out.

In fact, hardly any of the people I met during the summer struck me as greedy, at least not in an unforgivable way. And that surprised me. I had set out thinking that if I explored a few hot spots of what I thought of as the "lottery economy," I would find two things: naked avarice and an underlying note of anxiety, a worry about when it might end. I can't say I really found the first; most of the people I met were just pursuing what they had reason to believe was their rational self-interest. As for the anxiety, though, I think I did find that. It was there in the would-be traders in Cancun who had learned the hard way that it was even easier to lose money than it was to make it. It was there in Silicon Valley in the way engineers constantly handicapped up-and-coming companies like bettors at the racetrack, trying to figure out which would be the best place to get a job. It was also there in the rap of day-trading entrepreneurs like Harvey Houtkin in Las Vegas. What they sell--despite their pro forma warnings about risk--is like a lottery ticket, a tantalizing chance to get in on a bonanza. And the underside of that appeal is the unspoken threat that if you don't run out and get yours now, you could miss out completely.

Returning to New York, I tried to get comfortable with the idea that while there were many opportunities for wealth these days, there was also a sense that you would have to take advantage of them strictly on your own initiative. No one was going to help you or do it for you. And that seemed to mean that you had to be on the alert all the time. We--or some of us, anyway--are becoming empowered, economic free agents, increasingly independent of old habits and institutions. Which is great. But it also means we're on our own.

The twenty- and thirtysomethings in Silicon Valley in particular talked often about their conviction that when they are ready to retire there won't be any Social Security or company retirement plan that could do them much good. Getting as much as they could now was not strictly a question of wanting to get rich. It was also a matter of responsibly providing for their families. A generation ago, you'd try to get a steady job with a big company with the hope that in 20 or 30 years your loyalty would be repaid with not only a gold watch but also a healthy pension. It was a low-stakes game--you weren't going to get rich--but it was also a safe bet. Now all that's changed.

And the same thing goes for investing. To be sure, there will always be plenty of prudent people who invest the Warren Buffett buy-and-hold way. But we are also in a time that rewards speculation, when moving in and out of investments quickly can be very profitable. You can make--and lose--money both ways. The question is which style you prefer and how much speed and risk you're comfortable with.

As for me, I won't deny that I feel a little twinge every time I hear one of those shouts from the craps table. I fantasize occasionally about dumping my mutual funds for something more exciting, about leaving my comfortable job with a big corporation for some WWW start-up. But I won't. If in 20 years I have to explain to my kid why I didn't get rich during the '90s, I'll have to fall back on this, feeble as it will no doubt sound to his 22-year-old ears: I happened to get a glimpse of our economic future back then, and it made a cautious guy like me nervous. It was a little too frantic, a little too feverish. And like a lot of other things at the end of the 20th century, it was moving just a little faster than I thought I could handle.