In the face of steadily declining stock prices, many students who have entered the market with self-managed online accounts are now reassessing their investment strategies. Lead by heavy losses in the technology sector, the transition from bull to bear market has left many investors reeling.
“It”s been terrible,” admitted Business junior Ashish Parikh. “I hold biotech and Internet infrastructure stocks you really shouldn”t be holding right now. My experience has been just like anyone else, it”s frustrating.”
One of the central questions for investment analysts is how online investor behavior will change in the wake of growing losses.
“The usual psychology is that people are highly reluctant to sell stock when they lose money,” said Business School Prof. Vikram Nanda. “People have the expectation that this is temporary, that it has to come back up. It may not be rational, but that”s the investor psychology.”
With the stock prices of many online brokerages declining, investors and analysts have also questioned the vitality of online investing.
“There is no evidence to support the idea of a significant move away from online investing,” said Philip Nunes, an Ameritrade representative. “Ameritrade had a 66 percent increase in total accounts from February 2000 to February 2001. This past quarter was the company”s third best for acquiring new accounts.”
“People have been predicting a mass exodus to bricks-and-mortar firms” said Marissa Hermo of Datek Online, “but we haven”t seen that. Our funded accounts have risen by 100,000 between October of 2000 and February of 2001.”
While the number of online accounts remains steady, a number of other effects of the recent price declines have become evident. Trade volumes, especially among casual investors, have been on the decline.
“Less active investors are more easily scared off, and our trade volume has decreased,” said Hermo, who reported a drop in trades per day at Datek Online from 117,695 to 91,541 between January and February.
Ameritrade reported similar numbers, with trades per day falling from approximately 131,000 to 114,000 over the same period.
Many private investors, who have in recent years managed their own portfolios, are returning to brokers for advice and guidance.
“We”ve seen a 40 percent spike in use of our online Learning Center where people take interactive classes on investment fundamentals,” said Sondra Harris of Charles Schwab.
“We”ve seen an uptick in the use of planning tools and research on the Web. In other words, investors need more advice and education and they are using the Web to help obtain it,” she said.
The trend is part of the evolving face of private investing, and is one of the ways the industry is attracting investors” business.
“The Web fills an important need for investors who want to be empowered and informed,” Harris said. “They often want advice from a human but resources on the Web give people the ability to stay as plugged in to their investment activity as they wish.”
As the market continues its slide, most investors remain content to hold their investments in anticipation of future gains. While faith in the prospect of booming technology stocks has faded, the steady presence of online accounts signals investors” belief that the market will rebound.
“At this point I”m thinking in the back of my mind that as irrational as the bubble was, we”re now on an irrational low with all the people trading online overreacting,” said one Business student of his own investment prospects.
“It may be two years before (my investments) are back to what I paid for them. For now, I”m just going to hold on for the long run,” he said.