By David Drucker
Daily Bruin Contributor
College students nationwide, including those at UCLA, are a
growing segment of Internet stock traders who are just as likely to
watch the Financial News Network as they are ESPN or MTV.
UCLA’s Undergraduate Investment Society, founded in
December 1998, boasts a membership of about 400 to 500 students,
and is made up of students whose reasons for joining range from a
simple academic interest in financial markets to those who trade
regularly through stock brokers and online trading accounts,
according to president and co-founder Howard Ko.
The Internet trading phenomenon, referred to as “day
trading,” Ko explained, is “like a video game with
money, especially for people our age.”
“But, by investing while we’re young, we learn a lot
more about the market,” he added.
Philip Lidoon, a fourth-year political science student, has been
trading for two years and invests in both individual stocks and
mutual funds, which are specific groups of stocks. He treats day
trading more like a part-time job than a gamble, and spends five to
10 hours per week online researching the companies he invests
in.
“Usually I go with big-name companies,” Lidoon said.
“I track them in the news to see what’s happening with
their business strategy.”
Lidoon added that, on average, his trades have netted positive
results.
“If they release bad news, I get out right away and cut my
losses,” he said.
But Anderson School finance professor and market volatility
expert Antonio Bernardo had a different take.
“Day traders are not employing a tax-sensible strategy.
When you go in and out of the market quickly, the capital gains
taxes are much higher. What you really want as an investor is to
buy index funds. This provides diversification and is
tax-friendly,” he said.
But Arun Chikyarappa, a fourth-year math/economics student, is
careful of the risks he takes.
“I’m really hesitant to take a big gamble by using
borrowing techniques such as margin accounts,” he said.
A margin account works as a loan from an online or traditional
brokerage firm used to purchase shares of stock. It doesn’t
pose a problem as long as the stock performs well. But, as Bernardo
points out, timing when those upswings are going to occur is
difficult, especially with the market’s behavior as of
late.
Chikyarappa said he prefers to invest in technology stocks such
as those of Internet firms traded on the volatile Nasdaq, and said
he hasn’t achieved the results investing that he had hoped
for thus far ““ though he estimates his success rate to be
approximately 60 percent.
“Uncertainty works both ways,” Chikyarappa said.
“The more risks you take, the more money you earn from your
investment.”
Bernardo, meanwhile, said he doesn’t believe in market
timing as a way to invest.
“A successful strategy the last three to four years has
been to buy on the dip, but we don’t know if that will be
successful in the future.”
Bernardo added that some of the market’s perennial success
stories, such as Warren Buffet’s Berkshire Hathaway
investment firm, have actually done poorly during the bull market
of the past five years.
“In my opinion, you should have $750,000 of disposable
wealth before you start holding individual stocks,” Bernardo
added.
Students like Lidoon, however, disagree.
“I’m able to take risks that older people
can’t. In a sense, I have play money. If I take a loss, I
don’t look at it as being out of the market,” Lidoon
said.
Added Chikyarappa, “Risk is what you get paid
for.”
But others recommend a cautious approach to day trading.
“Think of your investment capital as tuition. Only invest
money that you can afford to lose,” Ko said.