SEC chair warns investors to use caution with online trading

Journal Record, The (Oklahoma City), Jan 28, 1999

WASHINGTON (AP) -- In a rare public statement to individual investors, the government's top securities regulator warned people to use as much caution trading over the Internet as when going through a broker.

The remarks Wednesday by Arthur Levitt, chairman of the Securities and Exchange Commission, came amid regulators' concern over the recent wild swings of the Nasdaq Stock Market, especially among the hot Internet stocks.

"Investing in the stock market will always entail risk, no matter how you do it," Levitt said in an interview with The Associated Press. "It is just as easy, if not more so, to lose money through the click of a button as it is to make it." An estimated 5 million amateur investors now do at least occasional trading over the Internet, a trend that prompted Levitt to warn investors in the interview and a press statement issued later. People trading online should "remember the investment basics, and not allow the ease and speed with which they can trade to lull them either into a false sense of security or encourage them to trade too quickly or too often," he said. Levitt also made his first public comments about day trading, a risk-prone endeavor used by a small but growing breed of investors, many of whom have abandoned their regular jobs for the prospect of quick riches. Day traders seek out stocks solely for their sharp price swings, buying and selling them quickly to capitalize on the short-term movement in price and rarely holding a position overnight. Strategies such as day trading can be "highly risky" for Main Street investors, who should engage in it only "with funds they can afford to lose." Levitt said. He said he has heard stories of people putting up their student loan money, mortgages or retirement savings to finance their day trading. "Investment should be for the long run, not for minutes or hours," he said. State securities regulators have stepped up their scrutiny of day- trading companies, which sell novice investors training courses. A handful of regulators, particularly in Massachusetts, have filed fraud charges. Operators of the day-trading companies acknowledge they're not for everyone, but they say the state regulators are unfairly tarnishing the industry because of a few rogue firms that may have misled investors. In all kinds of trading, Levitt advised, investors should adhere to three "golden rules": Know what you are buying, know the ground rules under which you buy or sell a stock or bond, and know the level of risk you're exposing yourself to.