Todd Beardsley finishes his pizza and trots back into a sun-splashed room full of Silicon Valley day traders. It's Friday and he's "up" for the day. A Yahoo climb, a semiconductor company's dip and a few hundred other moves have carried the 37-year-old former builder into a mood of optimism, a cash-inspired calm. He figures there's no more work to be done.
Then he sits down, and sees the screens. While he was busy eating, the NASDAQ was busy diving down, down, down at a rate of 100 points per hour. The CNBC commentators squawking on the overhead TVs look like frightened crash-untested dummies, but Beardsley starts swearing for reasons that have nothing to do with fear -- and everything to do with why he has been day trading for a year and never thinks of quitting.
"A monkey could make money with a slide like that," he says. Go "short" at the top -- borrow shares at one price, sell them and then buy them back at a lower price before returning them -- or go "long" at the bottom, buying dependable stocks that are sure to "bounce" with the market. Either way, on days when the market either surges or crashes "it's like throwing darts," Beardsley says. "Just throw your money in and you'll win."
Call them crazy, call them confident -- but whatever you do, don't call them dead or gone. Sure, the market looks nothing like it did when day traders burst upon the scene in 1998. High-growth and double-digit returns are as dead as a dot-com, the Dow is down and the once-plump NASDAQ looks anorexic, flirting continuously with 2,500, half what it was worth only seven months ago (even despite its biggest one-day gain ever on Tuesday). But day traders are proving to be a surprisingly resilient bunch, and they're planning to stick around.
Actually, they never really left. There are no official statistics on the number of day traders in the market on any given day, month or year, and some have definitely quit since April. But "nothing's changed," says "Tokyo Joe" Park -- "one of the most influential stock pickers on the Internet," according to Fortune's Joseph Nocera. Wide-eyed novices still flow into offices like Beardsley's. TCI Corp. -- a high-priced day-trading school -- reports that enrollment is up. And at Silicon Investor, the granddaddy of all day-trading Web sites, traffic reportedly keeps climbing by 10 percent each month. Election week proved to be the five-year-old company's best ever, say company officials.
Why has the interest failed to ebb? Critics like Jay Perlman, associate general counsel at the Motley Fool and former deputy chief of the Securities and Exchange Commission's Internet fraud enforcement division, argue that people keep day trading because they're addicted to the risk. "It's like gambling," Perlman says. Both activities are "recession-proof" not because cards or stocks lead to early retirement but, rather, because the participants -- gamblers all -- can't let go of their get-rich-quick, all-American dreams. They're blind, he says, unable to see that day trading isn't a job but "a giant scam."
"Yeah right," says a bald, day-trading former banker named Craig Russell. "If I was a gambler, I'd go to Vegas," he retorts. "Hell, the cocktail waitresses sure are cuter."
Russell and other traders say even Vegas can't make you as rich as fast as day trading can. The market may be down, but day traders are parasites immune to the sickness or health of the host animal: They have no problem going short, profiting daily from long-term misfortune. They're still active because they can ignore the market's overall trends, says Anthony "Mad Max" Elgindy, one of the Web's most famous traders.
"It all boils down to your abilities," he says. If you're quick, if you do your research and if you're willing to lose money for a while in order to better understand the "mass psychology of the market," you can still make a mint. Look around: Elgindy's still profiting; Park is up too. They may not be making the same fortunes now as they did last winter, but when you're a day trader, says Elgindy, "There's always money to be made."
It's Thursday, Nov. 30. In a few hours, the NASDAQ will close at a 15-month low of 2,597. Reporters are busy filing stories filled with words like "plunge" and "crash." Message boards at Yahoo, Silicon Investor and other sites are abuzz with talk of financial ruin and the index's "death spiral," while CNBC commentators scream loudly in panic.
Over at Elgindy's Web site, however, it's business as usual. Among the 290 members -- who pay Elgindy $600 per month for access to his inside picks -- jokes fly back and forth; boasts, tips and links to relevant stories pop in and out. When Elgindy messages the group to let them know that he'll be on a local news show, someone posting under the name MamaBeat suggests that Elgindy tell the audience that "people need to seriously take up day trading for a living."
Sarcasm? Maybe. But maybe not. Elgindy made a name for himself by being good at profiting from problems. "He's the Internet's most theatrical short seller," wrote Gary Wolf and Joey Anuff in "Dumb Money: Adventures of a Day Trader." "He's the guy who makes bucks every day off everyone else's lurking suspicion that the last five minutes of the bull market might have been just a bit too good to be true."
Back in 1998 and 1999, going short didn't always make sense. The market looked heliotropic and most day traders rode the upswing. They avoided shorts not just because the market climbed so quickly but also because they entail a greater degree of risk -- if the stock goes up instead of down, short sellers still have to repurchase the shares, meaning that they may lose even more than their original stake.
Now, however, short selling is the day trader's entree du jour. Elgindy's members thrive on the hope -- often fulfilled since April -- that their chosen companies will stumble. They shorted Handspring during Comdex, for example, betting (successfully) that investors who bought into Visor-hype would come to their senses once the high-tech conference ended. And on Thursday, when Research in Motion -- makers of the BlackBerry wireless e-mail device -- announced a deal with AOL, Elgindy advised his minions to start going short. "It's junk," he says, explaining his move. "When we see a press release, we know it's time to go against them."
Even Park has started giving up on the longs. The New York trader became famous by picking winners. When "Scam-Dogs and Mo-Mo Mamas" author John Emshwiller visited him in July 1998, he was making money from big companies (Egghead Software, which Park bought at 9 and sold at around 30) and smaller ones like Books-A-Million Inc., an online bookseller in Birmingham, Ala., that rode Amazon's fame to a rising stock price of its own. Throughout 1999, Park continued to follow the day-trading momentum mantra: "Buy high, sell higher."
But times have changed. On Thursday, he and his 1,000 disciples -- who pay a measly $200 per month to join his Societe Anonyme -- were shorting many of the same stocks as Elgindy: Broadcom, Handspring, Research in Motion. The trend continued on Friday, and on Monday Park started shorting bigger players, sending out an e-mail with the note: "Look for EBAY YHOO AOL bottom." Even on Tuesday morning, when pre-market trading pushed the NASDAQ up 65 points and the Dow up 200, Park told the group that he would be shorting.
The strategic change couldn't be avoided, Park says. The market "decimated" a lot of traders who couldn't let go of going long. But the smart ones -- seemingly, those who listen to Park -- sat out the spring and "are now doing very well."
"We love this volatility," he says. "When you have a stock that moves 20 points in a day -- up or down -- we couldn't be happier. I still make $10,000 to $20,000 a day. I ask my members; they earn the same."
Experience, guts and talent make financial success possible -- or at least that's the Kool-Aid that day traders are still drinking. And one always has to remember that day traders aren't the kind of people inclined to tell you how bad they are doing. They live and die by rugged individualism: the belief that failure derives not from the market but from a lack of skill, knowledge and patience. They remain determined to day trade, they say, because they've been given tools once reserved for Wall Street, and because they trust that they'll eventually figure out the market, unmask the secrets, hit it big. It's just a matter of time, says Beardsley, who even though he hasn't earned a dime since July is still gung-ho. "You need to persevere," he says. "You have to stay confident."
Be realistic, take your licks and learn from the professionals, says Russell, who sits one row over from Beardsley in the office of ProTrader, a national day-trading chain. It took him a year and a half to become "marginally profitable." Success didn't rain down because he got lucky either; others helped him learn, and he was a diligent student. And now that's he made it -- after three years, he says he's earning a respectable $80,000 to $100,000 salary -- going back to work as a banker is out of the question.
New traders say they are treating day trading like law, medicine or a new business -- any other career that requires time, money and experience. Since they've entered the fray in what's beginning to look like a bear market, they recognize that failure is possible and that costs may be high. But whereas last year's investors tended to give up on stocks in such times of trouble, today's new traders turn the market into a personal challenge. The doubts they have relate to their psyches -- "Can I do it? Will I be able to learn fast enough?" -- as opposed to the market. They consider lost money a start-up cost and insist that with a little hard work and some guidance, they'll be able to keep their losses small and learn quickly how to get rich.
Some even figure that now is the perfect time to learn. Greg Harrington, for example -- a 30-year-old software engineer who started day trading in September -- says that "good times reinforce bad habits." When you go long and promise to sell at the first sign of a loss, then do not -- only to see the stock fly high once again -- it's easy to let the discipline slide. Instead of using "limit orders" to buy an up-running stock -- i.e., setting a ceiling on how much you're willing to pay -- you might end up falling for "market orders," which forces the buyer to pay whatever the market decides. New traders won't make these mistakes, Harrington says, because they're "not waiting for the market to return to what it used to be." They are by nature more conservative because they recognize that "it might be this way for a while."
Still, Harrington -- a soft-spoken trader who says he promised his wife that he'll quit by the end of January if he doesn't turn a profit -- didn't get involved because he wanted to become a more disciplined individual. He started day trading for the same reason as Beardsley and Russell: He heard that others were earning lots of cash while making their own hours, and he wanted a piece of the action. Day trading got its start because a technological revolution made market information more available than ever; it has continued to thrive because day traders share not just the market's information but also their own. They're not so much gamblers as they are fishermen, always willing to describe the big catch, the one that just got away, but never the days spent without a nibble.
Most of those fish tales are hard to verify, however -- does Park actually earn $10,000 a day, or is he padding losses with the income he makes from Societe Anonyme dues? But right now, the average trader still takes the stories on faith. Until the whiff of day-trading success fades, continual market downturns are unlikely to scare them away.
"There's probably 50 guys who use this room to make $1 million or more each year," Beardsley says, eyeing his colleagues. "I'm not going anywhere because I know I can be one of them."
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