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Crash boom on the rollercoaster ride from hell

Friday 12th May 2000

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EDUCATED RISK: Real-time information is more readily available to investors
ANDREW ARNOLD profiles a day in the life of a day trader

A friend of mine went to a psychic at the beginning of this year and was told the sharemarket was going to crash in May.

Well, that time of the year is almost upon us so perhaps the more superstitious among us should consider taking their money out of the sharemarket now and putting it into something safer like a bank or a pillow.

You can never tell what will happen. Perhaps the psychic will be right. Perhaps the market will crash and you will lose all of your invested money. Or perhaps it won't crash at all and life will go on as normal.

Even if it does crash, will we even notice it? Let's face it, this year has been the biggest rollercoaster ride in the history of the Stock Exchange and it is only April as I write this.

The world's sharemarkets have been experiencing their biggest one-day loses and then just as quickly their biggest one-day gains, and that is only if it doesn't all happen in the same day. It is total anarchy out there, yet everybody seems to be taking it in their stride.

Any other time in our history and we would have been in a recession, maybe even a full-blown depression. As it is we are in the middle of what will be looked back on as a boom period both in the sharemarket and the economy.

This new market is the result of several things that have happened since the sharemarket crash of October 1987 and the confidence and bull run of the 1990s.

The companies listed on the sharemarket have more stability and are financially more sound than those of the 1980s. Their books actually balance, unlike many back then when money was thrown at businesses, with no real concern about how the money was going to be paid back or even if it could.

Shareholders now demand frequent, up-to-date and accurate financial reports from the companies they have invested in. They take advantage of the power they have in determining the running and direction of the companies they have a vested interest in.

The world markets are more interdependent than they have ever been. A significant fall on Wall Street almost certainly has global reverberations.

We may think that we are our own nation, but we are but one small cog in a huge wheel called the global marketplace.

This new economy is spurred on by the advent of the technology sector and the dominance the US has in this and the world economy.

The spread of the multinational company has meant a greater interest not just in that company's local market but also in those of the countries they have invested.

The numbers investing their money in overseas markets is also greater, meaning events happening in their domestic market are more likely to flow into the other markets in which they have also invested. This is even more important when we consider that the number of investors has increased and is of a more diverse nature and background.

No longer is investment in the share market confined to the wealthy and traditionally middle aged group of investors. Investors can be in their teens. They are well educated and more prone to take risks - educated risks - based on readily available information and technological advances.

Technology is like a vine that grows and grows, taking over everything in its path. Watch it and it seems to move slowly, if at all, but when you look back you realise how fast it has grown.

Ten years ago, the internet was a word most of us had never heard of. Now it is likely we use it every day. It is transforming the world and the way we operate and do our business.

Inevitably it affects the share market. Average investors now able to watch their share movements in real time through the internet and can invest without having to go through a broker. Investing in the share market has become cheap and affordable, spawning a new breed of investor called the day trader.

Day trading, still in its infancy in this country, is quickly becoming the way to invest in the sharemarket. Day traders buy and sell frequently - trading fees are cheap - and are a major reason the sharemarket is such a roller coaster ride.

More investors accessing the market more easily increase the momentum of fear and greed that fuel the sharemarket. The selling momentum can turn a drop in the market into a major fall and the buying momentum can turn rise into a dramatic, record climb.

This reality is the future of share trading with the first months of this year a teaser of what we can expect from now on.

There will be more record one-day falls and rises. The more the world becomes a global economy, the more momentum we will experience from day trading.

So, if the market does crash in May, as the psychic says, will we recognise it as such or, as we have quickly become accustomed to doing, take it as a bad hair day and do some bargain hunting tomorrow?

Andrew Arnold worked in London as a unit trust dealer and since returning to this country now works as a day trader.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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