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Online Investing


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ONLINE INVESTING

Today, as I do so often nowadays, I began my day in Zagreb. I know it well. I can practically hear the balalaikas--or whatever they play in Zagreb--strumming. I can almost see the rain clouds beyond the horizon (on the infrared European weather map). Now is the time to get indoors and stop by the Zagreb Stock Exchange.

It is not busy at "http://ksaver208.zse.com.hr/".

It is 7:21 p.m., Zagreb time, and I am only the 94th visitor today. Yesterday, 332 people stopped by. So far this year I am the 1,078th person to arrive from a U.S. commercial organization. There have been 15 from the U.S. military, one from Brazil, 198 from Germany, and so on--I have the list in front of me, all 35 pages of it, broken down by country, hour, company of origin, and lots of other things I don't understand.

It is a gala day at the ZSE! War has not impeded the never-ending quest for investment capital, it would seem. The words appear before me: "The biggest Croatian pharmaceutical company is going to be privatized." Details, copious details, are available. Had I been one of the 107 visitors to drop by on Feb. 27, I'd have been among the first to learn about another unique investment opportunity: a chance to buy a Croatian municipal bond. It is issued by Istrian County, a leading Croatian tourist spot, for what is delicately referred to as an "environmental project."

Like most emerging markets, Zagreb is an exciting, if not always hospitable, place for investors. For hospitality--and an unrivaled breadth of information--I need only tap into the great global dialogue that is going on 24 hours a day. This mammoth, never-ending idea exchange does not always tell me what I want to know. But if it doesn't, all I have to do is ask.

NITTY-GRITTY DETAILS. Such is the reality of my life nowadays--the virtual reality, if you will. I have just emerged from an extended exploration of the online frontiers of investment. I have spent weeks there, cruising the electronic vastness. I have gotten eyestrain, headaches, and backaches. I have risked repetitive-stress syndrome and Lord knows what else.

But it was worth it. What I found is a new, unique--and potentially very powerful--source of investor information and interaction. True, it is largely shunned by the established powers on Wall Street. And that is a good thing. The online world is unruly, anarchic--and no repository of conventional wisdom. It is a world where small investors dominate, and where facts--not the Street's agenda--are paramount.

Sources of information online are rich, some startlingly so. And perhaps the greatest resources are the investors themselves. For the first time, small investors have a way of rapidly exchanging information--and it's often the kind of nitty-gritty details that are prized by the pros. The message boards of the large commercial services and the message-exchange powerhouse known as the Usenet, with its 30 million potential users, can easily outclass the one-sided and often unreliable output of the Street's analyst-report machine.

To be sure, there are vast black holes in cyberspace. I can enter Zagreb's stock bazaar easily and drop by the Chicago Mercantile Exchange World Wide Web page seconds later. But none of the U.S. stock exchanges has a formal presence in the online world. I can enter trades into the order-execution systems of major brokerages. But I found Wall Street pros to be as reluctant to venture into the Internet as they are to recommend that a stock--heaven forbid!--be sold. That anti-Web attitude, which is fast eroding, is a terrific advantage for believers in the school of thought, made popular by Peter Lynch, that the best sources of investment information are people with personal knowledge of the companies.

GET-RICH-QUICK SCHEMES. For small investors, the online world is more than information. This is the first time in history that they can communicate among themselves as easily as their institutional cousins. Online investment communities, focusing on particular companies, are beginning to take shape. I stumbled upon one on Prodigy.

Like most people who have encountered the Internet for the first time, I was overwhelmed by the sheer mass of data. But after mastering the basics, I found it easy to navigate the World Wide Web, the conglomeration of computer sites linked via the Internet. (A few of the best financial Web pages are listed on page 67.) Among other things, investors for the first time can get full-text copies of corporate filings with the Securities & Exchange Commission, something previously available only to people willing to spend hours at SEC offices--or to pay handsome sums to private document services.

True, there are dangers. I encountered a host of get-rich-quick schemes and questionable capital-raising efforts, operating so openly that one is tempted to wonder: Where are the regulators? An all-too-typical example of the downside of this new world can be found in the story of the online "prospectus".

But I found the world of online investing to be reassuringly self-policing. At its best, the information exchange is a civil and informed person-to-person interaction, a "genuine dialogue" of the kind idealized by Martin Buber. Dialogue is a new phenomenon for investors, who are used to being talked at, not with. Shareholders now can even disseminate investment information about companies they own via their own World Wide Web pages. I found one example--rare, at present, but far from the last, now that Prodigy plans to give its customers that capability. Still, the two-way information flow, I discovered, can also be a double-edged sword, as is demonstrated by the tale of a prominent online investment newsletter.

Despite all this promise, the online investment world remains sadly underutilized. And one of the major reasons is that old bugaboo--fear and loathing of technology. Investors have not been treated kindly by many of the technological innovations of the past two decades, from computer-driven trading to mortgage-backed derivatives. The online generation gap doesn't help, either. Although some of the most devoted online mavens are retirees, a Luddite aversion to going online is the Achilles' heel of investors who were raised in an era when technological savvy meant the ability to change a typewriter ribbon. But even that is changing. "I have a 14-year-old nephew in Norway who obtains vast amounts of information from the Internet. I felt that if he can use the Net, we as a bank could use it, too," says Henrik Asland, a senior vice-president at Den Norske Bank in New York, who has begun tapping the Net's corporate data pool to research potential clients.

Yes, whether or not a little child shall lead them, the pros are coming. And that's exactly why the time to take the plunge into online investing has arrived. Once the pros arrive, the danger is that cyberspace will simply mirror the conventional wisdom. Today, going online gives investors a distinct edge. In the pages that follow, chronicling my journey, I'll show how a growing number of intrepid souls are pioneering the world of online investing.

The Dialogue

My first exposure to the online world was on America Online. AOL publishes an electronic version of BUSINESS WEEK, and that introduced much of the staff, myself included, to this vast global community. But I could just as easily have chosen any of the other major commercial online services--Prodigy, CompuServe, or the smaller services, not to mention uncounted thousands of private bulletin board systems. All are gateways to the most crucial aspect of the online world for investors--the great, ongoing dialogue.

This is a subject that has gotten a lot of awful press. And it's true that I saw some garbage on the investment message boards--idle chatter, scams, and "flames," or insulting messages. So what? There are still scads of useful information out there, particularly for the individual investor. Much of it is fresh, firsthand--and, unlike analysts' reports, subject to immediate challenge from other users. Because of this ongoing "peer review," investors are in a good position to get definitive answers to any question, from broad investment strategy to specific buy-and-sell analysis on individual stocks, mutual funds, and bonds.

To get involved, I didn't need any fancy software or souped-up hardware. I didn't even need a color monitor. Even with the molasses-slow 2,400-baud modem and ancient IBM clone that I have at home, I could access Usenet newsgroups, Internet E-mail, and mailing lists. Nor did I have use for any of the zillions of books on the Internet. All I needed was a phone number to access a commercial service or bulletin board that is linked to the Net and carries a reasonable quantity of newsgroups. The board provides the Internet address and easy-to-follow instructions on using the newsgroups and E-mail. My AOL address is Garywbw@aol.com. I also have a Prodigy address (NNEL28A@prodigy.com) and an address at an Internet provider known as NETCOM On-Line Communication Services Inc.: garyrw@ix.netcom.com. But initially, I was only at AOL.

PALAVERING VIA USENET. AOL, like the other commercial services, offers a host of online features of value to investors--various investment message centers, investment software, and commercial sites. But the only feature that has no offline equivalent is the dialogue. Sure, investors can palaver among themselves and join investment clubs, but there is no counterpart to the breadth of the online discussion groups. I found that the most varied and widely populated discussion takes place in the Usenet newsgroups and in the Internet's investment mailing lists. The Usenet is a kind of global message center. The messages are "posted" in thousands of "newsgroups" that are electronic versions of the old-fashioned pegboard bulletin boards. The mailing lists--there are thousands of them, too--are similar to the Usenet newsgroups, except that the messages are sent by E-mail to each subscriber. The subscribers send messages to one central point, and they are then sent out to every subscriber to the mailing list.

Only a few of the newsgroups and mailing lists specifically relate to investments. (Some of the "alternative" newsgroups, a kind of vast online gabfest, cover subjects ranging from Star Trek to hard-core porn.) But it's easy to ignore the junk and aim at the Usenet groups of interest to investors. They go by the names "misc.invest," "misc.invest.stocks," "misc.invest.funds," and similarly named newsgroups for Canadian stocks, real estate, technical analysis, and futures trading.

Computer and high-tech stocks are particularly popular subjects, given the large number of techies online. And there's a great deal of solid, insidey stuff. "I just came back from the Atari Presentation at the Stockholm Norra Latin Conference rooms," goes one recent posting in misc.invest.stocks. "We got a presentation by Atari Europe's marketing director." The message- poster was disappointed: "They did not have a finished CD game to show." But there were positive elements, which he listed in detail.

The messages are organized into "threads"--or subjects--which can be sorted alphabetically. It's easy to scan them to comb out the get-rich-quick postings and "What is a stock?" queries from newcomers. In fact, the message traffic can be quite astute, and because of the huge numbers of academics and corporate execs viewing, or "lurking," in the newsgroups, the range of expertise can be impressive--particularly for stocks with a scientific dimension.

Newsgroup discussions move fast, with messages often getting answers in hours. One recent and typical message thread in the stocks newsgroup began at 7:48 p.m. Greenwich mean time on Apr. 18. A user at Delphi Information Systems Inc., a commercial service, posted a query about the developer of a certain type of laser--the excimer--to correct vision problems. He didn't have the name of the company but noted that "the reports I hear about this are miraculous, so this could be a hot company to watch for." Over the next five days, seven users provided the names of companies developing the laser, as well as its regulatory status and the pros and cons of the device. One message-poster was even using the excimer laser, albeit not for eye surgery. And if I had wanted to pursue the subject further, I could have continued my research in "sci.med.vision" or the other medical newsgroups. These are also a great source of info about new drugs--a big mover of pharmaceutical stocks.

The newsgroups don't stint on mainstream stocks. When last I looked, the stocks newsgroup was still the site of a lively discussion on the merits of Wal-Mart Stores Inc. And, as is quite common, there was a good assortment of expertise. One gent commented on the "changes in management technique since the death of Mr. Sam [Walton]," and added: "I work for a major competitor and see them falling closer to our erroneous ways!" His E-mail address was on the posting, so I could contact him for more information--or to verify his credentials.

Meanwhile, there was discussion of a hot initial public offering, Boston Chicken Inc. A lengthy, well-reasoned post from a shareholder presented the positive elements of the stock, and another user argued for shorting the stock. Elsewhere in the newsgroup--among the 6,500 messages available through AOL--I found arguments for and against just about every other stock imaginable. Quite a bit was refreshingly evenhanded--something one almost never gets on the Street. One user, for example, chimed in on a discussion of Toys `R' Us Inc. with a skeptical but favorable analysis--while another provided a customer's viewpoint.

MYSTERY MESSAGE-POSTER. That's the kind of information I would need if I were considering the stock--and, believe me, much of Usenet is at least as reliable as the analyst reports I see. But the newsgroups--and the discussion forums of the online services--are even better. If I don't see what I want, all I have to do is ask. If I don't get an answer, I ask again, or rephrase my question--an intelligent or challenging question, reflecting some knowledge, is more likely to draw a response than "What's going on at IBM?"

The main hazard of the newsgroups is that you don't always know who's posting the messages. Still, I found it fairly easy to sort out the phonies and four-flushers. Anonymous messages, for example, are of dubious value, at best. You can post messages on the Usenet anonymously via a Finnish-based Internet server, which hides the user I.D. and origin of the messages and sends them out again. One anonymous message I saw late in January, signed "The Shorters Network," dumped on a Canadian company, Fountain House, for its "weak fundamentals." The "network" charitably provided the names of three brokerages where stock could be borrowed to effect a short sale. But anyone who took the advice got badly burned--the stock promptly soared 20%, singeing the shorts, before declining. (My E-mail to the message-poster went unanswered, and I'd wager that the "network" is a one-man band.)

True, there are plenty of stock-hyping posts in the newsgroups--but those messages are usually flamed into submission. If you want to buy the investment equivalent of the Brooklyn Bridge, there's always the Wild West of the newsgroups, "biz. misc," the home of pyramid and other fast-cash schemes. But only the brain-dead would confuse such bilge with the ongoing dialogue that is the heart and soul of the online world.

The Coterie

As I trolled the newsgroups, I looked in vain for evidence that investors were using the Internet as a way of organizing among themselves, as well as obtaining information. But then I received a tip--by phone, not computer--about a curious community that had developed in an unlikely place: Prodigy.

Perhaps it's their mass-market appeal, I don't know, but Prodigy and the other big online services have a reputation among Internet old-timers for being declasse. Yet Prodigy is where one of the most innovative uses of the online services is taking root. The Prodigy TMMI coterie, as I call it, vividly illustrates the potential of cybercommunications as a vehicle for investors organizing among themselves. The Prodigy TMMIers dwell in the discussion group known as the Prodigy Money Talk Bulletin Board.

I wish I could claim that TMM Inc. is a significant and noteworthy company. In fact, it is a troubled penny stock, a Thousand Oaks (Calif.) multimedia company with a history of litigation too convoluted to recount, including a bankruptcy (from which it has emerged) and the involvement of members of singer Michael Jackson's family. News coverage has been spotty despite the Jackson family link and the disappearance of one of TMM's founders, Philip Taylor Kramer, former member of the rock group Iron Butterfly.

TALKING "TRUTH OR LIES." For most of the past few months, investment pros who punch up TMM's stock symbol, TMMI, on their terminals would just find a handful of press releases. But for Prodigy users, it's another matter. At times, TMMI is one of the hottest topics in Money Talk. The first message "string" I saw was provocative: "TMMI--Truth or Lies." I read on. Another writer declared: "It is buying time...you NOW know what the others know, so do your thang!!!" "Obvious hype," yet another responded.

The enthusiastic debate on the Prodigy board seems to be restricted to a few users. But that's deceptive. The potential audience is in the hundreds of thousands. Prodigy estimates that some 50% of its 2 million users access the financial forums and features, which puts investment in a tie with news as the second most popular feature (the biggest draw is sports). One user who conducted a survey of TMMI shareholders via Prodigy and shared his findings on the board said he received more than 400 E-mail responses from TMMI shareholders who were "lurking"--reading but not posting messages. He estimated that Prodigy members own some 10% of the 40 million TMMI shares outstanding. "It's a society--a little cult maybe," notes Lawrence F. Panik, a dentist in Corona, Calif. and an active Prodigy TMMIer.

The TMMI coterie at Prodigy has been aggressive in ferreting out information about their obscure company. Led by Panik, who lives a short drive from TMM's headquarters, a group of Prodigy's TMM shareholders were given a presentation on Valentine's Day. Such "dog-and-pony shows" are typical for analysts and institutional investors--but rare for small shareholders. The visit was organized cannily, to include people with different areas of expertise--a lawyer and a computer expert, for example. Only 10 shareholders came along, because the company was concerned that the visit might be construed as a shareholder meeting. The participants reported their findings back to the message board.

To me, the issue is not "truth or lies"--whether TMMI is a great company or pond scum. What matters is far broader--that the online world has given these TMMI people clout they wouldn't ordinarily have. Whether they use it well or poorly is entirely up to them, as it should be.

The Newsletter

The newsgroups and E-mail are the workhorses of the online world. There is a purity about them--raw data, exchanged from user to user. Much the same can be said about the Internet's most widely ballyhooed feature, the World Wide Web. You can get tons of useful data on the Web, from SEC filings to stock prices to corporate "home pages".

I was unable to access the Web through America Online, so I subscribed to NETCOM, a national Internet provider. And one of the first Web sites I accessed was the one belonging to an obscure investment newsletter called Hot Stocks Review. Obscure offline, that is. But in the online world, Hot Stocks is as shy and retiring as Rush Limbaugh. There are other newsletters on the Web, but Hot Stocks and its online siblings--Hot Stocks Whispers and Hot Stocks Confidential--are probably the most visible sources of stock promotion. Whispers is posted in all the investment newsgroups, and each posting contains the Review's Web site address. So when I got my first Web browser, I zoomed straight to Hot Stocks Review. I was impressed. It was well-written, interesting, and free as the wind to anyone possessing a Web browser. But was it reliable?

THE DOUGH IS POURING IN. I had several enjoyable phone conversations with George Chelekis, editor of Hot Stocks. Chelekis is based in Clearwater, Fla., but he focuses his stock-picking on Canada. In his varied career, the 43-year-old Chelekis has worked as journalist, author, and publicist. "I don't sell. I provide information," says Chelekis, a voluble sort who cheerfully punctuates telephone conversations with four-letter words.

Nevertheless, Chelekis told me that the money is pouring in--from subscribers, who get an extra-fast, E-mailed look at his dispatches for a fee. And above all, the dough is rolling in from the companies he writes about. As duly noted in an online "disclaimer," some companies pay a "research and promotional fee" to be mentioned in Hot Stocks Review. Chelekis says the average fee paid by the companies is $10,000. He wouldn't tell me how many of the companies promoted in the Review pay for the privilege, or which ones they are, saying they are handled by his "business staff." "I've never counted as to whether it's 60% or 50% or 40% or whatever," he said. But he insisted that the payments have no bearing on his objectivity. By way of illustration, Chelekis told me that he once was offered $100,000 to rate a stock favorably and says he suggested the company engage in an anatomically impossible act of intimacy. He wouldn't identify the company.

Chelekis aggressively promotes risky Canadian over-the-counter issues, including lots of mining outfits. And he can be enthusiastic. Maybe too enthusiastic. Take one of his recent picks, an Ottawa company that makes luminescent materials for signs, Luminart Inc. Chelekis has been so unstinting in his support for Luminart that on Mar. 28, the company took the unusual step of publicly disavowing the Mar. 20 newsletter, saying: "Investors are cautioned against relying on Chelekis' column as an accurate source of information concerning the company's affairs." Chelekis says he hewed to the straight and narrow in his analysis of Luminart. He wouldn't tell me, incidentally, if he was paid to pitch Luminart in Hot Stocks.

I can't understand why so few investment letters have followed Chelekis onto the Internet. Although he wouldn't reveal the cost of maintaining the Web page, Chelekis concedes that the Internet has been a remarkable, and extremely cost-efficient, marketing tool for turning Web surfers into paying subscribers. No wonder. He has the field almost entirely to himself--so far.

The Web Site

I wasn't alone in being drawn to Hot Stocks Review's multihued Web page. One Net browser who did likewise was a computer consultant named Stephen H. Dimond from Vancouver, B.C. George Chelekis' enthusiasm for Luminart was so infectious, Dimond told me, that he bought 900 shares of the stock at 91/4, late in January. It was not a propitious decision.

In just a few weeks, the stock lost nearly half its value, falling to 51/4 on the Canadian over-the-counter market. Chelekis blames rapacious short-sellers, who he says are in league with certain members of the Canadian press. But the reason for the decline is pretty much irrelevant. What really matters is what Dimond did in reaction.

An obscure company's stock declines for the murkiest of reasons. Even for professionals, that can be daunting. Faced with such grim situations, small investors usually have all the power and influence of a cockroach on the trading room floor. They just get squashed. There's not a thing they can do or say about it. Or is there? Dimond felt that Luminart was getting a bum rap in the investment world, so he set out to spread the word. Did he do this through a letter-writing campaign? No way.

RIGGING UP A CYBER-SPOTLIGHT. Dimond's solution: a World Wide Web page. As a computer consultant and engineer, he had all the equipment at hand. After getting permission from Luminart, Dimond went to work. Armed with a company brochure, a Macintosh computer, and a scanner--a device that translates hard copy into computer files--Dimond captured the full-color image of the brochure. He sent this, and some of the brochure's text, to a nearby Internet provider called Wimsey Information Services Inc., where he already had a Web site. Voila! "http://www.wimsey.com/dims/Luminart.html": the Unofficial Luminart World Wide Web Site.

In one fell swoop, Dimond made information about this fly-speck company available to the roughly 30 million people who use the Internet worldwide. Because of the Web, Dimond was able to set forth his case to the masses--something previously only possible for large corporations. Now, other small investors are likely to do the same. On May 9, Prodigy announced it will give subscribers the ability to set up their own Web pages. And the other major commercial services are sure to follow.

For Dimond, it was a simple issue: "Instead of panicking, I took action." Whether or not people should listen to him is, of course, another matter.

The Prospectus

A chichi New York designer beermaker, Spring Street Brewing Co., announced in March that it was placing an initial public offering prospectus on a World Wide Web page. It was billed as the "first online prospectus." When I saw the press release, I was taken aback. Hell, I had seen plenty of online prospectuses from the first sputter of my trusty Hayes Accura 144 modem.

Take a posting I saw in "misc.invest" some weeks before Spring Street sprung its IPO on the investment world. The earlier posting solicited "$7.7 million in equity investment over a 13-month period" for an unnamed product from an unnamed company that has "no competition" and would be sold via "TV direct marketing followed ASAP by retail." A profit-and-loss table was included in the message. And boy, it was the kind of investment prospect that would make Morgan Stanley hyperventilate. This company projected a first-year loss of $2.5 million on sales of $16.4 million and explosive growth thereafter, with profitability in the second year and earnings of $22.5 million on revenues of $137.5 million in the seventh year. An E-mail address was provided for further information. I wrote!

DISARMINGLY CANDID. I swiftly received "an executive summary extracted from the business plan for your review." Here's an executive summary of the executive summary: The company--Pocket Made Inc.--is planning to introduce a "revolutionary automated cleaning device for which it has patent rights." The device is Pocket Maid, a "handheld, battery-powered, rechargeable, portable scrubbing/cleaning device."

I turned to the chapter headed "The Investment and Return." The Pocket Made folks were a bit vague about fairly basic things, such as how much the shares would cost. So I called Pocket Made in Chicago to find out a bit more. They were disarmingly candid.

I was particularly interested in the legal aspects of the offering. After all, I had always been under the impression that the Securities & Exchange Commission was touchy about the way companies raised capital. Bill McAninch, "vice-president of operations, secretary, and treasurer," says that Pocket Made was offering a private placement. In the newsgroups? That struck me as a mighty public way of conducting a private placement. McAninch and another company official conceded that they probably did go about the thing as if it were a public offering, which is supposed to be registered with the SEC and the states where they're soliciting funds--which, this being Usenet, would be all of them.

Did Pocket Made register any securities with the SEC? No. Or even a single state? No. So wasn't Pocket Made offering the sale of unregistered securities--a fairly serious violation of the federal and state securities laws? Well..."In a sense it was not legal, but the SEC never will enforce it," says McAninch. "Basically," he added, "we were advised not to panic, that the government understands that it's not legal but never has prosecuted anybody. They deliberately ignore low-level violations."

LOOKING THE OTHER WAY? The Pocket Made people say that no one actually invested any money as a result of the Net solicitations. And once McAninch became "queasy" about the legal issues after talking to his lawyer, he says, he stopped posting on the Net. But he was not missed. "There are literally thousands of offerings on the Net. The proliferation is tremendous," McAninch notes.

SEC officials say that the agency's market-surveillance group is keeping an eye on the situation. In March, the SEC filed suit against a Florida company for promoting a pyramid scheme on the Internet. State securities officials in New Jersey, Ohio, and Texas have begun prosecuting online investment scams.

Still, the buzz online is that the SEC and state regulators are turning a blind eye. The evidence for that? Well, take a look. Andrew Klein did. He's the former Wall Street lawyer who heads Spring Street, and he made sure--in compliance with a recent SEC no-action letter--that his online prospectus had everything the offline prospectuses are supposed to have, including ferocious-sounding "risk factors." He has cruised the newsgroups, and it makes his lawyerly blood boil. "I'm amazed at the huge number of blatant securities law violations going on in the newsgroups," says Klein. SEC officials say they have noticed an "enormous" increase in online securities offerings. So why are they doing so little? When I cruise the newsgroups, particularly "biz.misc," and see post after post offering moneymaking schemes, the SEC's see-no-evil attitude reminds me of Claude Raines's immortal line in Casablanca: "I'm shocked--shocked!--that gambling is going on here!"

The Street

So what's Wall Street's attitude toward all this? That was the question I kept asking everybody I ran into online. The answer is simple. With a few notable exceptions, Street types wouldn't be caught dead online.

For the most part, it is the adventurers of investing--the computer-intense traders--who use the online services most. Futures traders are particularly heavy users, and newsgroups devoted to futures trading and technical analysis are popular with Wall Street futures and options traders. Many independent traders are habitues of these newsgroups and the commercial services. One independent futures trader in New York, Larry J. Lawrence, told me he even stumbled on a discussion of advanced technical-analysis software in a Prodigy investment bulletin board.

For the most part, however, the Street's main online preoccupation has been the prosaic business of taking customers' orders. Not surprisingly, the powers of online brokerage include the biggest discount brokers--Charles Schwab, Fidelity Investments, and Quick & Reilly. The big wire-houses are not anxious to replace their flesh-and-bones brokers with computers, and the only one with a significant online presence is a large trade-execution firm, the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. Pershing's online entry is a discount brokerage, PC Financial Networks.

Executing trades online may seem like a humdrum business, but in fact it's as hot as an overused modem. According to a study by Forrester Research Inc., a Cambridge (Mass.) consulting firm, the number of online brokerage accounts is likely to more than double, from 600,000 to 1.3 million, over the next three years. And that number may be conservative if Schwab, now linked to the laggard GEnie online service, shifts to one of the larger online services. Online investing's growth has been phenomenal: PC Financial had all of 10,000 accounts in 1990, and by dint of a hookup with Prodigy, it now has 160,000. Schwab claims the lead, however, with 170,000.

HAMPERED BY HACKERPHOBIA. Online investors tend to be more active, holding much larger balances and making bigger trades, according to Schwab Vice-President Carolyn Stewart, who heads the discounter's online effort. Operating margins are helped by the fact that the brokers are literally replaced by a computer--and by lower-paid recent grads. "The average age here is 25," PC Financial's Chief Operating Officer Blake Darcy told me at PCF's spanking-new quarters in Jersey City, N.J.

But the Street has kept a generally low profile online, with few firms even maintaining sites on the Web. Hacker-phobia is one prominent reason. "The comfort level just is not there, and we can only speculate about the reason," says David Spector, head of the Internet services group at J.P. Morgan Securities Inc. In this tradition-steeped firm, comfort with the online world is high--sort of. The company has placed its Riskmetrics risk-assessment methodology on the Web, as well as detailed mortgage application data and an industrial commodities index--all fascinating to institutions but about as much use to individual investors as tide tables for the English Channel. Well, at least they're trying.

Morgan analysts and economists say they keep an eye on the emerging markets and the world fixed-income markets via Internet mailing lists, newsgroups, and E-mail. "As one of our analysts put it, `Ever try faxing something to the Soviet Union?"' says Lisa Ezrol, a Morgan techie who helped set up the Morgan Internet connection.

Unlike most people on the Street, Morganites have the Internet literally at their fingertips. Any Morgan analyst or economist can get access to the Morgan internal "home page," which contains light and heavy Web stuff--New York City information, as well as financial and economic data sites. But apparently the Morganites are either ashamed to talk about their Internet interactions or unwilling to share data sources with their competitors. Although Morgan executives assured me that their people are heavy Net users, the Morgan public-relations staff searched diligently but couldn't find a single investment pro or economist who was willing to talk about it.

NO TIME TO PROWL. Left to my own devices, I searched the newsgroups, using a nifty commercial Internet search device called Infoseek, and found a bunch of Morgan people, almost entirely engaged in highly technical palaver in the computer newsgroups. For all I know, they might have been lurking or using the Internet mailing lists, but I found only a single Morganite who posted anything in the "misc.stocks" newsgroup. I found the posting when a novice's request for stock symbols was answered, with typical online helpfulness, by a fellow named Kyle Rudden at "jpmorgan.com."

It turned out that Rudden is a utility stock analyst at Morgan. He finds the Net useful--to a point. He told me he has used the Edgar database of Securities & Exchange Commission filings. But he was not brimming with enthusiasm for the Internet. The problem? He just hasn't got time to prowl the Net.

But I did, and what I saw intrigued and fascinated me. And it's inevitable that J.P. Morgan is going to be joined by the rest of the Street. Like it or not, the online world is here to stay. And despite all the stock hyping and other sleaze, so is online investing. It is at that rare point in the life of any investment innovation--a frontier that has gone unexploited by Wall Street. But the time is growing short before the pros start trundling in. Until then, small investors will have the online world to themselves. Better enjoy it while it lasts.

THE PLUSES

A GLOBAL DIALOGUE

The Internet newsgroups and mailing lists, and the commercial discussion groups--such as Prodigy's Money Talk bulletin board--are an unrivaled investment idea exchange.

CORPORATE INFORMATION

Securities & Exchange Commission filings for companies and mutual funds that file electronically are obtainable via the Edgar project at no charge. Corporate information is also available from a variety of other sources, such as World Wide Web sites and the commercial online services.

NUMBERS BY THE TRUCKLOAD

Economic, monetary, and stock data are available from a wide variety of sources, including the Federal Reserve, the University of Michigan web server, and other data providers on the World Wide Web.

A LEVEL PLAYING FIELD

Now small investors as well as institutions can broadcast their views worldwide-through the newsgroups or even their own World Wide Web sites.

THE MINUSES

GARBAGE IN, GARBAGE OUT

Since anyone can access the Usenet newsgroups, that supposed stock wizard may really be a precocious 11-year-old.

STOCK PEDDLERS ARE PROWLING

Stock peddlers prowl the investment-oriented newsgroups and the discussion groups of the commercial online systems, and some brokers are pushing stocks on their own Web home pages.

BEWARE THE QUICK-BUCK SCHEMES

The online world is rife with outright scams--quick-buck offerings aimed at the gullible and even some more subtle operations.

IT SURE AIN'T EASY TO FIND

Searching for investment information can be time-consuming--and therefore expensive--if you're not familiar with the Net. However, index pages on the Internet make it easy to find the more conspicuous and widely used investment pages.

DATA: BUSINESS WEEK

Some Worthwhile Web Sites

http://www.yahoo.com/Economy

The Yahoo index of Web sites

http://town.hall.org/edgar/edgar.html

Corporate and mutual-fund SEC filings

http://www.secapl.com/cgi-bin/qs

Stock quotes delayed 15 minutes

http://networth.galt.com/www/home/insider/publicco.html

A list of WWW pages maintained by public companies

http://finweb.bus.utexas.edu/finweb.html

The economics Web page at the University of Texas

http://alpha.acast.nova.edu/listserv.html

A searchable index of Internet E-mail discussion groups

http://www.infoseek.com/Home

Full-text searches of newsgroups and Web pages

DATA: BUSINESS WEEK

Navigating the Online Maze: An Investor's Guide

1 SCOUT THE TERRITORY

To find worthwhile sources of investment information in the World Wide Web--the galaxy of Internet "home pages"--start with one of the various index pages. Two of the best for investing are the Yahoo indexing service's economy listings and the Global Network Navigator's personal finance entries. A list of new financial web pages, updated every two weeks, is available from the National Center for Supercomputing Applications.

2 ADJUST YOUR SIGHTS

The Usenet newsgroups are an ideal place for the next step--brainstorming with other investors. The best area for exchanging stock ideas is the "misc.invest.stock" newsgroup. There are similar newsgroups for mutual funds, futures, and Canadian stocks, and an array of similar discussion groups in the online services and private bulletin board networks.

3 TAKE AIM

Tons of raw data are available via the Internet. You can get full-text corporate filings on stocks and mutual funds from the SEC's Edgar database, which is available on the World Wide Web. The commercial online services provide corporate data, too, and it's more easily digestible--for a price.

4 FIRE!

You can now use an online brokerage, which enables you to send your order

directly to the floor of the exchange. The Big Two in the online arena are PC Financial Network, available through Prodigy, and Charles Schwab & Co., available through GEnie or directly from Schwab.

5 KEEP AN EYE ON THE TARGET!

The most important step of all. The online world, particularly the Usenet newsgroups and commercial discussion forums, is ideally suited to link you up with your fellow shareholders--who can join you in monitoring your investment.By Gary Weiss in New York


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