Online Trading Riches

A recent article in the Wall Street Journal stated that “small investors are diving back into stock trading, driving business at some discount brokerages to near record levels.”
Upon reading the article, it reminded me a lot of the late nineties during the tech boom. At the time you had commercials for Ameritrade with a character named Stewart. This guy was a young punk that was all fired up about online trading.
In one commercial, Stewart’s boss was calling his into his office. Everyone thought it was because he caught him photocopying his face instead of working. Instead, his boss wanted a lesson in how to buy stocks using the Ameritrade website. His boss wanted to buy Kmart, so in the commercial he told him to research it then buy it. At that point he was “in” with the boss. He was riding the wave of the future. The funny thing is that this commercial appearied in 1996. Kmart ended up going bankrupt. When they reorganized they issued a completely new ticker symbol and the old shares were worthless.
I’m sure the research on the website was stellar on the online investing site. The problem is that you wouldn’t have gotten information that everyone didn’t have. This gave investors a false sense of confidence that they really had control over their investments. However, they usually just ended up as statistics in the scrapheap of folks that got burned in the stock market. The investments firms did just fine because they made their money on the transactions of investors who were simply striving for a better future.
Since that time, a well mixed all stock investment account would have well-more than tripled in value. Unfortunately, very few investors saw those kinds of results. Staying disciplined, rebalancing and buying stock when it seems like the sky is falling, rebalancing into bonds when it seems that stocks are headed to the stratosphere are all behaviors that are nearly impossible to maintain when dealing with our money.
Investor coaching is all about helping people deal with their fears, their doubts, and their instincts so they don’t get pulled down the wrong paths at the worst times. When it comes to investing, we have seen the enemy and it is often ourselves. Unfortunately, the vast majority of investment providers use these very human traits against us in the sales process. This is nothing new. I was recently told a story by a historian that floored me. It appears that some of the most financially successful people during America’s Gold Rush weren’t the prospectors; they were the people that came and set up hardware stores. Is it possible that the online trading firms and many in investment advising community are simply the hardware store owners of today?