He Never Saw The Sun - day traders who became addicted to buying and selling stock

Kiplinger's Personal Finance Magazine,  August, 2001  by Steven T. Goldberg

Tags: stock, Sun Microsystems Inc.

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TRENDS | The ease of online trading turned some investors into STOCK-MARKET JUNKIES.

FRESH OUT OF business school, Jack was a phenomenon as an investment banker. With a winning smile and a confident manner, he put together mergers and acquisitions that made his annual take-home pay "north of $400,000," he says. "I made my first million by the time I was 24." Jack seemed to have it made. But at night he lay in bed and pondered suicide.

Everything Jack was making in his business, he was losing in the stock market.

Trading online much of the day, Jack was so obsessed with the market that "I never noticed the sun shine," he says. "All I did was watch CNBC and stare at my computer." Today, ten months after he stopped trading, he recalls those days with a hint of longing: "The euphoria is just extreme. The adrenaline rushes, and you feel on top of the world. I've dabbled in drugs and I've never felt a high like that. Nothing can replace it."

Jack is a gambler--not at the slots or the track but in the stock market. Because of his addiction to risk, Jack (who, like several people mentioned in this story, asked that his last name not be used) has traded a spacious home on 2.5 acres for a townhouse and has filed for bankruptcy. "I lost everything," he says, in a tone that suggests he doesn't quite believe it himself. "I had $3 million and I lost it all." His marriage has ended, and he's more than $600,000 in debt.

Online trading, with its virtually instantaneous trades, and the technology-stock bubble led to a dramatic upsurge in stock-market gambling, experts say. "It gives gamblers the quick fix and constant action they crave," says psychologist Marvin Steinberg, director of the Connecticut Council on Problem Gambling. "That's sent the number of people gambling on the stock market through the roof."

Who hasn't taken an occasional flier on a stock without much more than a hunch that it would do well? But that's like comparing someone who drinks a glass of wine with dinner to an alcoholic. They both start with the same buzz, but one often ends up destroying his or her life and the lives of the people around them. As with social drinking and alcoholism, there's no clear, bright line between making a few impulsive stock trades and being a problem or compulsive gambler. Both diseases tend to be progressive, sneaking up on people before they know they're in trouble.

No authoritative numbers exist on compulsive gambling in the stock market. But Edward Looney, director of the Council on Compulsive Gambling of New Jersey, estimates that roughly 10% of investors become problem gamblers and 5% more become compulsive gamblers. The difference is one of degree. Problem gamblers may lose a lot of money but stop after a huge loss or when they're confronted by a spouse. It takes a lot more to derail a compulsive gambler.

Gambling on stocks, as on horses and the slots, brings financial ruin and tears families apart. Suicide is often the end game. "The thing about gamblers is that they always have that last card to play, and suicide is the last card," says Manuel Manolios, who counsels gamblers in Pittsburgh.

The road downhill

JACK THOUGHT about suicide for years, and attempted it once about 18 months before he stopped gambling. He swallowed a bottle of pills and drank vodka, but vomited the mixture back up. "I had lost a ton of money," he says. But even with the suicide attempt, he didn't seriously think about stopping.

It's easier to rationalize gambling big sums in the stock market than betting on, say, NFL games. "What legitimizes the market is a George Soros or a Stanley Druckenmiller [hedge-fund managers] making so much money trading the markets so rapidly," says Jack. "It's a lot harder to get rich off the casinos or the horses." Because investing is usually considered a virtuous activity, gambling in the market is more insidious.

Wagering on stocks is a faster road to the poorhouse than any other form of gambling. Only the highest of high rollers would consider betting $25,000 on a single turn of a card. But many stock-market gamblers will bet that much on a single trade. Compulsive sports bettors typically take a decade or more before they go broke; stock-market gamblers can do it in a couple of years. "Our average caller has a $35,000-to-$40,000 gambling debt," says Kevin O'Neill, deputy director of the Council on Compulsive Gambling of New Jersey. "But usually stock-market gamblers have lost everything they had, and sometimes their jobs, too."

All gamblers tend to up the ante. After someone has bet $10,000, a $1,000 trade doesn't create much of a rush. "Once you get to a certain level, you don't go back," says Mike, 29, a legal assistant in Baltimore and a recovering stock-market gambler. "A trade that used to be exciting to you doesn't do anything anymore."

Jack's gambling problem began while he was getting his master's degree in finance. His parents paid for school, so he took out student loans and borrowed from others to gamble on stock-index options. He roughly doubled his $80,000 stake in less than a year, only to lose it all.