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OCTOBER 22, 1999

Diary of a Day Trader, Part 1

Do they get an unfair rap? George Henel of Buffalo, N.Y., thinks so. Follow his exploits in this six-part series, and decide for yourself

Robert Barker
Robert Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online



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Ever wonder what it's like to be a full-time day trader?

I know I did, and that's why I jumped at the chance to follow along in the stock market adventures of a fellow from Buffalo, N.Y., named George Henel. A longtime Internal Revenue Service attorney who left his job in 1997 to trade stocks full time, Henel contacted me last August. It was just a few days after day trader Mark Barton had gone berserk in Atlanta, killing himself and nine others. Henel wanted to make the case that day traders were getting an unfair rap. "I have been watching all the media," he wrote me in an e-mail, "and thought you might want a more conservative slant than the fellows with the spiked hair." (BW, 11/01/99, "Not All Day Traders Are Looney Tunes").

I was suspicious, if only because my every instinct tells me that day trading is a path to quick losses. I still think that, and I wonder how Henel, 55, will keep up his pace, which in the year ended September had brought him a portfolio gain of 245%, pushing his trading account solidly into six figures.

"I will be the first to say that day trading is not easy," he told me. "I differ in that I operate almost exclusively on New York Stock Exchange stocks and generally only trade "value" stocks.... I find that it is very important to know the way that your stock trades before you trade it. It's kind of like getting to know a good friend. Also, once you have a nice group of friends to trade, you don't need much else."

To learn more about how he operated, I asked Henel to send me regular e-mail reports beginning in September and running through early October -- a tough month to be a trader, it turned out. How did he manage? You'll see in this special six-part series, which begins today and runs through next week on Business Week Online's Daily Briefing. Here is Part 1:

Wednesday, Sept. 1
A slow day today. Traded a total of 3,000 shares of Anadarko Petroleum (APC) in two trades for a profit of $600. APC is an oil stock, and oil started moving up and then faltered late in the day.

A missed opportunity in J.C. Penney (JCP) yesterday. I have traded this stock often with good results. Was up almost two points today. I missed the big drop. Still holding Stillwater Mining (SWC). There is a big seller hiding the stock. Stillwater, in platinum and palladium, is a one-of-a-kind company.

Friday, Sept. 3
Thursday I sold all my positions in Newmont Mining (NEM) at about 20 13/16, which gave me marginal gains.

I sold 2,000 Stillwater Mining (SWC) today for a gain of about $800. I still have some shares in inventory. It's a nice way to play industrial materials and precious metals at the same time. I also bought some J.C. Penney (JCP). Hard not to do it with a 6% dividend yield. This may take a few days to work out as a trade.

What a difference a day makes. If this 200-point rally reverses next week, it would be very bad for the market. The daily Dow swings are increasing from 1% to 2%. Personally, I do not think it is healthy for the market.

I don't know why, but it always seems hard to make money on Fridays. For now, I will go with the flow, but I will only buy "hard rock" value.

Tuesday, Sept. 7
It's 11:25 a.m. I feel like I have had enough for the day.

I have done three day trades in Burlington Resources (BR), Anadarko, and Weatherford International (WFT) for a tally of $2,645. My regret is that I should have stayed with the positions longer. Could have added another $2,000.

I am just not comfortable with the market action today. No follow through to the big rally Friday.

Wednesday, Sept. 8
Today was a very busy day. I day traded Nike (NKE), Newmont Mining (NEM), J.C. Penney (JCP), and Anadarko (APC) for a gain of about $1,100. The Anadarko and Newmont sales were at the top of the range for the respective stocks. I really missed a big gain by getting out of NKE early. It went an additional two points. Some brokerage house apparently recommended it. I didn't know this fact. The market tuned down, so I decided to exit.

I also purchased 5,000 shares of APC at various levels. It is hard to understand why this oil stock isn't higher. As of 7 p.m., oil is trading at $22.19 per barrel. I am underwater about $2,500 as of the close, and hold an unusually large position of $175,000 overnight and on margin.

I feel with oil going higher. the risk is minimal. However, this violates my rule against too many eggs in one basket. I often trade this stock and know it has good value at the closing price. Otherwise, I would not venture such a position. Also, there was a big seller for the last several hours, which was followed by an even bigger buyer in the last 20 minutes. Also, I feel that this company could be taken over at some point. Anyway, hoping that the seller is gone tomorrow.

I feel that oil may break $23 tomorrow, and that we will see $25 sooner than a lot of people believe.

Thursday, Sept. 9
Watched Maria Bartiromo on CNBC this morning as she pushed the Net and high-tech stocks. She mentioned among many, Merrill Lynch's picks, consisting of Cisco (CSCO), Intel (INTC), and IBM (IBM). Also big call on Yahoo! (YHOO) and other Net stocks. Nothing new here, but I wonder about what's going on.

Why this constant push of Net stocks? Why would a major house recommend this stuff at these levels? Remember Boston Chicken? Well, Merrill recommended this stock all the way down from the $30 level, and pulled their recommendation at about $8. Later, it was disclosed that they were doing financing deals for Boston and making money in their underwriting departments, and held their recommendation knowing that Boston was over its head with debt it couldn't repay.

I believe that there have been close to 100 initial public offerings of Net stocks this year. So, it may be to a firm's advantage to push Net stock recommendations so as to insure that your house gets your fair share of the offerings -- and why Maria gets a steady diet of these recommendations. She almost never gets recommendations on oil stocks. No IPOs in the oil industry, even when oil is going through the roof.

Oil broke $23 per barrel today. My position in Anadarko was sold with a gain of $880. I missed the rally in Anadarko, which took place in the last 20 minutes.

The market environment is getting worse. Dollar at three-year low against the yen. Oil is going up quickly. Interest rates rising. Terrorism in Moscow, and gold is quietly moving higher. Lastly, I am taking my boat out of the water Friday. In 1987, the market crashed the day I was taking my boat out. I was all cash, so to me it was just a historical event. Maybe I should wait till the weekend.

In short, I am going to be a seller when I can, and keep my back to the door! I hope there is a big rally into which I can liquidate.

(Tomorrow: Part 2 of Diary of a Day Trader: A lot of work -- and "kind of a lonely business.")

Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online

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