Day
Trading Wizard
July
1999
Fourteen months ago we
first profiled day trading outfit Tiger Investment Group and
its founder and CEO Tom O'Brien. At that point there had been
very few pieces written about day trading, and it was considered
an obscure, highly speculative activity. Since then, day trading
has seemingly become mainstream. Cable financial news giant
CNBC does a daily feature. During this same period, the Commonwealth
of Massachusetts securities regulators have become increasingly
concerned with the practices of day trading outfits. At least
four firms in Massachusetts have been closed in the last year.
O'Brien, however, and his Waltham, MA based Tiger is still
standing. A former marine from South Boston, O'Brien is the
self-proclaimed "Wizard of Day Trading." One cannot
help but be enthralled with his manic speaking style, youthful
energy, and the extraordinary excitement he has regarding
the open playing field technology now brings to the securities
markets.
MID:
What's the biggest misconception the general public has
about day trading?
O'Brien: At this point-meaning
July of 1999, there's been a lot of bad publicity. But if
you went back six months ago, the misconception was that
you could make a fortune day trading. And that you could
do it very quickly without knowing anything. And that's
a misconception. There are no two ways about that. You cannot
come in right off the street, start pressing the button,
and start making money. You're trying to make that money
off professionals, number one, and it's not going to happen.
When we have clients come in, we say to them specifically,
"If you can break even the first year, you're making
money." That's the bottom line. Everyone wants to be
a trader just like everyone wants to be a baseball player
when you're growing up. The other misconception is that
everyone is losing money hand over fist. That's not the
case. It's somewhere in the middle.
MID:
Describe the profile of your typical client.
O'Brien: Our average
age in here is about forty. Over half of those people have
already had successful businesses-they're retired. The other
ones might have worked at GTE or IBM and got early releases
four or five years ago. And they're looking for something
that will last forever. And they're willing to say: "I
can put this type of work in, and I want to be trading when
I'm sixty and I'm seventy."
MID:
Why do you think day trading has gone from an obscure activity
to something getting significant media attention?
O'Brien: Well it started
when the Internet exploded-let's say a year ago. You look
at that Discover Brokerage ad with the truck driver that
owns an island. I mean give me a break-that's not where
it's at. The reality is advertisers started telling people
"You could make money doing this." And the thing
is people were buying Internet stocks and they were making
money! I would tell clients in these Internet stocks, "Please
get out of them, you're up so much money," and then
they'd go up another forty points. So when that happened,
it brought on thousands and thousands of people. The E-Bays
of the world…Yahoo!…I mean everything went up
so quick that people said, "Why don't I do this."
And there's definitely a thrill when you're sitting at home
and you're putting in a trade. There's more to trading than
just money. People just want to trade. You can tell people
that they're going to lose money and they'll still say,
"I want to take my shot at this, cause I feel I can
make money at it." It's turned into a ball now that's
rolling down a hill, and I don't see it stopping either.
MID:
We've recently seen the Commonwealth Of Massachusetts close
down some local day trading firms. Do you fear you're going
to be closed down as part of a witch-hunt so to speak?
O'Brien: No-because
trading is all about customer suitability. Our minimum account
in house is $50,000 that can be lost. We have a disclosure
statement, so it must be money you can lose. There's a disclaimer
in it that states no matter what you've heard about making
money someplace else, that it's false. The language is pretty
heavy, and we actually sit people down and make them sign
it. Outside, if they're trading on the Internet, it's a
$30,000 minimum. The exact same restrictions apply. And
now we've put out a new piece of software for people interested
in trading about ten times a month, and that will be a $15,000
minimum that you can lose. Every account in here-and we
have about 275 accounts-have signed disclosures.
MID:
How did you get into day trading?
O'Brien: I was buying
and selling bankrupt bonds for a while, and I was down in
New York City. I had done Pan Am and I had done Eastern,
and I was just delivering some bonds down in New York. The
company I had sold them to-I also helped work on some of
their computers-and they said to me that I should go and
see what this guy was doing, because he was setting up a
direct access deal onto the NASDAQ. So I went down, and
at first I saw Harvey Houtkin at All-Tech, and then I met
Josh Levine and Peter Citron at Datek. This was when it
was at its infancy. There were maybe forty guys in the entire
country who were doing this. In Harvey's office there were
only about three people the first day I walked in. It was
just in its infancy, and I just saw what was going on. And
because I had always traded…with the bonds I made a
market myself… and so I came back to Boston and thought
this is right up my alley.
MID:
So you came back to Boston-this was 1995-what did you do
next?
O'Brien: I turned around
and I registered to be a broker-dealer with NASDAQ and we
started setting up the T1 lines to the order-entry firm.
I sent the paper work in July of 1995 and it took six months.
We were registered as of January 2nd 1996 and that was our
first trade.
MID:
Do you perceive yourself as a Robin Hood of sorts-giving
market access to the small guys to compete with the big
guys?
O'Brien: Not really.
How I do perceive myself is an educational and open platform.
We have definitely opened the markets up. I don't see myself
as Robin Hood, because a Robin Hood would steal from one
and give to the other. I see it more as an open market.
This is how the SEC wants it. And I am facilitating it-that's
for sure. I am saying to the client, "Listen, you want
a clean execution, you want direct access? We have that.
And we're willing to give you that without taking anything
out in the middle."
MID:
Is day trading a fad or do you think it will become a regular
occupation for people considering securities careers? Will
there be a college major offered in it?
O'Brien: Right now Bentley
College offers a great service-they have a trading floor.
They don't have the execution yet, but that could probably
change too. This area is changing. In New York you've always
had traders, in Chicago you've always had traders, and in
San Francisco, because the exchanges have been there. They
have the best traders. They still do. But Boston has the
best money managers. An in Boston, you can learn from a
money manager. In Boston you have Fidelity, Putnam, MFS-those
are people to learn from. You have to be around people who
know what's going on. In Manhattan you can learn so much
it's insane. If you work for a Fidelity or Putnam, you can
learn a lot about money. It's changing right now. It's definitely
going to be a profession-it's already a profession. And
it's going to get a lot more sophisticated.
MID:
What's the biggest mistake beginning day traders make?
O'Brien: There are two
big mistakes that we see. If it's someone that's young that's
coming in, that has already made a lot of money, because
they haven't been through a lot of different things in life,
they're convinced that they can come in and make a lot of
money very quickly. We've had a lot of people that are 23
or 24 years of age that come in that have already made a
lot of money…
MID:
Made a lot of money doing what?
O'Brien: Being brokers.
These guys were brokers. They're in the business. But there's
a big difference between being a broker and being a trader,
and they don't understand that. And they will hit the button
very quickly. And the mistake is making too many trades
at the beginning, and it does not work. You cannot come
in and do thirty trades. You're going to lose money. Period.
And the second mistake-and we're hell bent on making sure
no one does this-if these guys are in chat rooms, and think
they can make money in chat rooms during news, they're right
out of their mind, because that is not the game.
MID:
Where do you see Tiger Investments going over the next three
to five years?
O'Brien: We're doing
two different things. We have Tiger Investment Group, which
offers the premier trading service. We've just offered a
second trading service. It's going to bring in a much bigger
scalability and take care of the traders who want to do
four to ten trades a month, but still want to be able to
Instinet, and trade before and after the market closes.
The second portion, which we're doing right now, is building
Tiger Financial News. It's a radio show two hours each day,
and we've just made a 24x7 deal with Real Networks. We're
going to build out, what's basically, a CNBC of the radio,
and spin that off. It's going to be an open platform for
active traders-for traders in general-and get people educated
regarding the marketplace. In the long run I can see Tiger
either doing an IPO, or realistically, getting taken out
by someone else, and then building Tiger Financial News
to a couple of hundred million dollars a year in revenue.
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