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DEAR DATA DOG: Who is making online trades?

The day may yet come when Sammy Sosa gets dealt to the Rangers over the Internet, but I suspect you're talking about personal finance. Certainly, from the onslaught of television commercials trumpeting the ease of setting up and operating an online trading account, you might think everyone but you was clicking his way to dividend heaven.

Actually, as the Security and Exchange Commission's “Shareownership 2000� report reveals, most people with directly-owned stock don't do much trading online ( In surveys conducted in 1998 and 1999, Dataquest Inc. found that of the 15 million adult Americans who were involved in online investing, fewer than 4.5 million did any sort of online trading. Most logged on to track their investments and look for information.

Even those who do trade online do so with a few caveats. The top complaint to the SEC filed by individual investors for 1999 was that their online trades were either delayed or not even made. That complaint was number two for both online and offline investors overall. Placing second for online traders was “difficulty in accessing account/contacting broker� — in other words, “broker hiding, after technical glitch delayed trade.� Thirty-four percent of those participating in the Dataquest surveys claimed that privacy and security concerns kept their trading down; 22 percent said online trading was too hard. Some 46 percent said they “saw no need� to trade online. These must be the same folks who saw no need to get an ATM card because there were bank tellers.

Men make up the bulk of online investors today. According to a 1999 study by Richard Day Research Inc., men outnumber women in online trading by two to one — despite the fact that 43 percent of adult stockowners overall are women, according to the Securities Industry Association ( When it comes to “traditional� traders, men account for 51 percent of this group, with women at 49 percent. Fifty-seven percent of online traders are less than 45 years old and 30 percent are under 35. Just 14 percent are 55 or older.

Brokerage firms would do well to enlist more women in online trading, as traders. According to an August 2000 Media Metrix/Jupiter Communications study, women now outnumber men online. [See “Cover Story, Lifestyles on the Internet,� p. 53.] And a recent study by Brad M. Barber and Terrance Odean at the University of California at Davis reports that women who trade online attain better returns than men. Why? They trade less often. It seems that when investors move to online investing, they tend to trade more often and more aggressively, which cuts into returns. Barber and Odean ascribe much of this to ease of operation, wealth of information, overconfidence, and underestimation of costs. These are the same faults that have doomed every one of James Bond's nemeses (and most of them have been men).

In a July 1999 study, Gomez Advisors found that more than 11 percent of all online traders were age 25 or under, with 5 percent of their trades being made from colleges and universities. Sixty-one percent were making trades from home, which might indicate that young people are taking in more on commissions from their folks than from an allowance. It also argues for running a ticker during broadcasts of Rugrats.

On the other hand, there is some evidence that kids think online trading is nothing more than “Financial Quake.� A 2000 study by The Jump$tart Coalition for Personal Financial Literacy reported that basic financial knowledge among high school seniors had declined over the previous three years ( Students who owned stocks in their own name scored as low on the survey as students who don't own any stocks: just 52.6 percent answered the survey questions correctly. (You just have to believe an organization that proves its concern with financial education by sticking a dollar sign in its name. No doubt “Coalition� would have been spelled with a ¢ if the character had been easily located on the keyboard.)

Given such a sound economic base, it's no wonder that a 2000 Scudder Kemper Investments survey revealed that despite the sea of information available online, 52 percent of Americans think they have too little information to make good investment decisions these days. And 63 percent believe people who trade on their own are gambling with their futures. Do the same people believe that letting other people make trades for them isn't gambling?

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