Authors: Stephen Frey
The DAY TRADER
Ballantine Books / New York
Table of Contents
For Lil, Christy, and Ash.
I love you.
So much help from so many.
Cynthia Manson, Peter Borland, and Gina Centrello.
Stephen Watson, Kevin and Nancy Erdman, Andy and Chris Brusman, Gordon and Shannon Eadon, Bob and Allison Wieczorek, Matt and Kristin Malone, Scott Andrews, Marvin Bush, Pat and Terry Lynch, Baron Stewart, Bob Flanagan, Tony Brazley, Mark Tavani, Mike Pocalyko, Walter Frey, Alex Fisher, Jack Wallace, Stephen Palmer, Bart Begley, Marc Shaener, Monty Davison, Chris Tesoriero, Barbara Fertig, Mike Attara, Alex Bushman, Drexel, and Cody.
I’m not a religious man, but I make the sign of the cross over my heart just in case. The way I do every time I start. After all, the next few seconds could change my life forever.
Employees aren’t supposed to use company Internet access for personal reasons, but lots of us violate the policy and no one’s ever been fired for it. Jesus, they only pay me thirty-nine thousand dollars a year to be an assistant sales rep for retail paper products in the mid-Atlantic region. So the way I see it, I deserve a perk or two along the way. I’ve dedicated eleven years to this company, but my wife and I still live paycheck to paycheck, even though she has a full-time job too.
Images flash across my computer screen, and I quickly reach the home page of the on-line brokerage firm I use to trade my small stock portfolio. As I enter the information required to access my account, adrenaline surges through me, like it always does when I get to this point. It’s as if I’ve bought a lotto ticket with a fifty-million-dollar jackpot, and I have that lucky feeling tingling in my veins.
My fingertips race across the keyboard as I close in on my target, and I pause for a sip of coffee and a deep breath. The deal is only a few screens away, and I’m addicted to the anticipation—so I prolong it. It’s one of the few things I look forward to these days. This morning, as I guided my rusting Toyota through bumper-to-bumper northern Virginia traffic and thick summer humidity, I had a premonition that today would be different. That something was going to interrupt my daily grind. But I’ve had that feeling before.
There’s a sharp knock and my eyes shift to the office doorway. Standing there is my boss, Russell Lake, vice president of all paper product sales. Russell is a slender man with thinning brown hair, a full mustache, and a pasty complexion. He leans into my cramped office, one hand on the doorknob, peering at me over wire-rimmed glasses. And I stare back like a boy caught digging in the cookie jar just before dinner.
“Good morning, Augustus.”
I can tell by the intensity in Russell’s eyes that he’s trying to figure out what I’m doing on my computer, but I’ve positioned it so someone standing at the door can’t see the screen. “Hello,” I say warily. You never know what he’s up to.
“Up with the eagles this morning?”
“What do you mean by that?”
“It’s only eight o’clock,” he says sarcastically, tapping the cracked crystal face of the same Timex he wore the day he interviewed me more than a decade ago. He’s always been sarcastic. That’s just the way he is. “Aren’t you usually crawling out of bed about now?”
I’m in by seven thirty almost every morning, sometimes earlier, but there’s no point in arguing. Like most bosses, Russell has a convenient memory.
“What are you working on?” he asks.
“Very funny,” he says, moving into the office. “Tell me the truth.”
I’m tempted to flick off the computer, but that would be a dead giveaway I’m doing something wrong. “I’m updating a sales report for central Virginia,” I say, hoping he doesn’t walk around to my side of the desk. “Nothing exciting.”
“Checking your stock portfolio again?”
Russell blurs before me. “What?”
He settles into a chair on the other side of my desk, an annoying smile tickling the corners of his mouth. “I know all about your day trading.” He snickers. “You’re on that computer at least two hours a day doing research, checking quotes, and placing orders.” Russell removes his glasses and cleans the dirty lenses with his striped polyester tie. “I’m willing to look the other way at a little indiscretion, but sales in your region are way down. A couple of weeks ago senior management wanted to know what was going on. I defended you as basically a good employee, but I had to tell them about your stock market addiction.”
“Dammit, Russell! Why’d you screw me like that?”
“Don’t blame me, Augustus,” he replies coldly, replacing the lenses on his face. “You’ve got to start accepting accountability for your actions if you want to get anywhere around here. That’s always been a problem for you.”
“How do you know what I’m doing on my computer?”
“I monitor the network.”
“So you’ve been spying on me?”
“Spying is such a nasty way to put it,” Russell says. “I prefer ‘monitoring.’ ”
“You’ve been watching me without me knowing. That’s what it boils down to.”
He raises his eyebrows and grins smugly. “Now you know.”
“You shouldn’t be using company property for personal reasons,” he retorts.
“Lots of other people do.”
“Other people get their work done on time. Besides, the company has a right to protect its assets.”
“And I have a right to protect my privacy.”
“Last year, you and everybody else around here signed a waiver permitting us to monitor your Internet activity,” Russell reminds me, “including e-mails. This shouldn’t come as any surprise.”
Now that he says something, I do remember signing that waiver. It didn’t seem like a big deal at the time, but it’s come back to haunt me.
“Are you day trading right now?” Russell wants to know.
I hear a different tone in his voice. There’s curiosity as opposed to warning, with a hint of goodwill too. But Russell is skilled at convincing people he’s reaching out when he’s really digging, so I have to be careful.
“Come on,” he urges when I don’t respond right away. “I’m interested.”
I’ve been caught red-handed, but if I’m cooperative, maybe he’ll cut me a break. “I’m not actually day trading,” I say cautiously. “Real day traders execute hundreds of buy and sell orders every day. I’m not doing that.”
“I’m buying a few shares here and there and holding them for the long term.” My entire portfolio is worth less than a thousand bucks. I won’t be retiring on it, but I get a kick out of knowing that when prices go up I’ve made money without lifting a finger. “Once in a while I get in and out within a couple of days,” I add. “But not very often.”
“So give me an example. Like what are you doing right now?” he asks, gesturing at the screen.
“Checking my account. Last night I e-mailed my on-line brokerage firm about an IPO they’re involved in.”
“An initial public offering,” I say deliberately. Russell knows almost nothing about the stock market. He’s told me he puts most of his money in a bank account earning a boring four percent a year. He hates it when the market goes up and loves it when it dives. “The company’s stock is scheduled to begin trading on the Nasdaq at nine thirty this morning. I was checking my account to see if I had won any of its shares in a lottery my firm was running yesterday.”
“What do you mean, lottery?”
I’ve spent a lot of time over the past few years learning all I can about financial markets by reading the
Wall Street Journal
, studying business school textbooks I’ve borrowed from my local public library, and doing research on the Internet. It feels good to show off a little of what I’ve learned. “The big brokerage houses sell shares of going-public companies to their preferred clients,” I explain. “Clients like insurance companies, mutual funds, pension funds, and a few rich individuals.”
“The haves,” Russell sniffs. He’s from a working-class family, like me.
“Brokers sell shares to those preferred clients at a price they think will rise during the first day’s trading,” I continue, ignoring Russell’s resentment.
“Ensuring their clients a profit.”
“Right. The brokerage houses want to make sure the preferred clients are always happy so they can count on them for the next deal, and the next and so on.”
“It’s a stacked deck,” Russell mutters. “An insider’s game you and I will never get to play.”
“That’s mostly true,” I agree. “In the past, small share lots were around, but you had to know somebody at the company or the brokerage house to get your hands on them. You really did have to be an insider. Now there’s a chance for me to get them too.”
“That’s where the lottery comes in. Because of all the Internet trading, the big Wall Street firms that lead IPOs have recruited on-line brokerage firms to help them sell shares to the general public. Online brokers serve regular people who, individually, may have only a small amount of money to invest, but, when added together, control a lot of cash. Like big firms, the on-line firms give their best customers first crack at most of the shares they have. But as a marketing gimmick, they make a small part of their allocation available to all their customers by running a lottery. The lottery gets lots of people interested. Even if they don’t win any shares in the lottery, the little guys do their best to get them in the after-market as fast as they can.”
“Which helps drive the price up on the first day of trading,” Russell reasons, “just like the big Wall Street firms want.”
Russell leans forward in his chair and rotates the monitor so he can see the screen too. “And you participate in these lotteries?”
“Sure. As long as you have an account,” I explain, nodding at the screen, “and money in the account to cover the share purchase if you win, you can play.”
“How long have you been doing this?”
I can tell Russell isn’t asking questions to build a case against me. He could do that simply by tracking my network activity. He wants to learn how to play the game. “Six months.”
“No,” I admit. “They don’t make many shares available in the lottery. Like I said, it’s mostly a marketing gimmick designed to spark interest in the stock.”
of anyone winning?”
Russell laughs harshly. “No one like you ever wins at this game, Augustus. It’s all a big con. They’re trying to make you think they care about your business. But they really don’t.”
That thought has occurred to me before.
“Well?” he asks.
“Aren’t you going to check to see if you won?” He wants to see my disappointment because he’s the kind of man who finds comfort in the despair of others. “Go on.”
I move the mouse so the flashing white arrow is on the appropriate spot and click to my personal page. Instantly a summary of my account—a detailed description of the few shares I own—appears on the screen, but at the bottom of the page is a blinking message I’ve never seen before. A message instructing me to click on it. The text is surrounded by exclamation points and turns rapidly from red to white to blue with firework graphics exploding all around it. Usually this message is a dull black and white. Usually it informs me that I haven’t won any shares—again.
Russell leans across the desk and points. “What does all of that mean?”
“I don’t know,” I admit, unable to hide my grin. “Looks good, though, doesn’t it?”
“Click on it,” he orders, an edge in his voice. As much as he takes pleasure in another’s disappointment, he hates his own envy.
I glance at the ceiling, cross my heart one more time, then guide the flashing arrow down to the message and click.
Suddenly the entire screen is exploding, and in the middle of the chaos is a box with words congratulating me on winning five hundred Unicom shares. It informs me that the IPO price will be $20 a share and that my account has already been debited ten thousand dollars, plus commissions.
“My God,” Russell exclaims. “Where did you get ten grand?”
According to Wall Street’s experts, Unicom could finish today’s trading at $100 a share, maybe even $200. The era of every dot-com IPO soaring into the stratosphere right away is long gone, but Unicom has been tagged a can’t-miss kid by the Street’s All-American analysts. It has developed an amazing, next-generation wireless technology, and the huge telecommunications firms are pounding on its Silicon Valley door to steal a peak inside the kimono.