Gaining their share of the wealth: Students Trade Studies for Stocks

John Jannarone '03 sits through class, just like other students, discussing the assigned reading and listening to professors lecture. But even as his mouth spouts physics and his hands jot equations, his mind is often elsewhere — taking a random walk down Wall Street.

Instead of focusing on the professor, Jannarone mulls over the performance of his stocks. And as soon as class is over, he will hurry to the nearest computer to log on to Fidelity's online trading system to get real-time stock quotes.

While recalling several occasions last semester when he was late for precept because he was bogged down with stock research, Jannarone interrupts himself to get end-of-the-day prices on his holdings. Mouse clicks can be heard across the phone line as Jannarone sighs and murmurs to himself, "Tough day."

Such is life for an undergraduate turned stock fiend.

A self-described "aggressive investor," Jannarone is one of many University students who are avid followers of the stock market. During the country's longest-ever peacetime economic boom, the widely held belief that everyone who invests will profit — and not just in small amounts, but in unheard-of sums of cash — is alive and well even at Princeton.

Technology stocks have been an investor's dream of late, and bio-tech and Internet-related companies have filled wallets just as surely as they have filled investors with bravado. Internet chat rooms devoted to stock discussions have sprouted up, populated with investors who want to jump on the bandwagon and hopefully save some extra money for that new cell phone.

As Generation X-ers build families and invest their savings and Baby Boomers urge their children to learn the ways of the bulls and the bears, a new generation of Internet-savvy investors — who do not subscribe to conventional investment tactics — is bursting onto the scene. Rather than studying a stock's fundamentals and earnings growth potential, these Netscape-surfing newcomers tend to invest in a hot tip or an exploding issue.

One such investor is Traci Ho '02. Though she describes herself as an "old-fashioned" investor, media buzz about the rising stock market piqued her interest in investing. "I would hear about Dow-this and Nasdaq-that on the radio on the way to school or on TV," she said. "I had no clue what they were talking about, so I found out eventually."

Bernard Wang '01 experienced the same phenomenon. "I'm from Silicon Valley, where stocks, IPOs and the overnight billionaires that they create are all the rage," he said.

Current market conditions have driven Ho to become a regular student of the market, researching stocks for three to five hours per week. "It's probably in the back of my mind when something big is happening in the market or news," she said.

There is a broad representation of investors at the University. While some, like Jannarone, trade without fear, others take a more conservative approach in handling their money, favoring a buy-and-hold strategy meant to foster gradual growth, rather than explosive gains.

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Michael Vaughn '02 is one of these investors. Though he will not graduate for two years, he is already thinking about retirement. "I plan to retire early," he said in an e-mail. "All my investments are long term. My investments are not for acquiring spending money, but to ensure that I can realize my financial goals later on in life."

Most investors, especially students, are not so forward-looking, but rather want to make money by playing the stock market. "It's a hobby," Jannarone said.

Rather than relying on stocks as his planned road to riches, he said trading is, for him, primarily a means to relieve stress. "I think it helps me get my mind on something else other than homework," he said.

Many industry experts point to the expanding Internet brokerage sector as a cause of the growth in student investors. As younger people have begun to dabble in the investment world, online brokerages have seen an explosion in transaction numbers. According to a recent CBS Marketwatch report, e-brokerage analysts said during the March quarter "daily trading volumes are at least 45 percent higher than seen in the December quarter."

Wall Street guru and University economics professor Burton Malkiel GS '64 said he believes students in general are very interested in financial investments. He pointed to the large enrollment in his ECO 317: Financial Investments class, which he taught for the first time this semester. "There were 184 kids enrolled," he said. "That's considerable interest."

Regardless of this increasing interest in the stock market, improved access to information and technological innovations that make trading easier have benefitted investors, said Malkiel, who wrote one of the most influential investing books of all time, "A Random Walk Down Wall Street."

"[Online trading] allows individuals to trade at a lower cost than with a full-service broker," he noted. "I'd recommend it to anyone. It's the most efficient way to trade."

Nathaniel Norman '03, who uses a full-service broker, does not prefer to trade online. "People who do it are people who have lost confidence in brokers," he said. "Others like to have someone to talk to. There's some value in having a broker as a friend. I can't think of any bad reason to spend money, if you have it, to use a broker."

Though Malkiel advocates online trading, he said he sees the increased access to trading as a risk to those who think wealth comes easily in the stock market. "What I'd worry about is if anyone thinks they can get rich from day trading," he said.

"Day traders in general lose money. It's not something I'd recommend," he added.

Though their methods may be different, University students seem to agree on the importance of researching stocks before making a purchase.

Alec Hanson '01, co-president of the University's investing club, said before he buys stock in a company he likes to know what products it makes. "To know what company has a better product, it's likely it will beat Wall Street expectations," he said. He added that before he purchases stock, he spends an hour researching the company's fundamentals and its long-term and short-term price charts. He said he also reads recent news about the company.

Jannarone looks for companies that dominate their markets and that "look like they're going to explode," he said. "I let professionals do the technical analysis."

Most young investors depend on the Internet for their research. Arthur Steinbock '01 uses an array of financial information Websites such as Yahoo! Finance, CNNfn.com, TheStreet.com and MotleyFool.com to research stocks. "I'll find out thoroughly what they do," he said. "More specifically, I will learn about their competition and their growth prospects. I also get an overview of their financials."

Despite his interest in the stock market, Steinbock said, "I don't want to go into finance. It's interesting for about 30 to 45 minutes per day while I'm reading The Wall Street Journal. After that, I don't want to hear about the stock market anymore."

Many student investors were urged by their families to learn about the stock market. Norman cites his uncle as his main influence. "The first stock I got was a suggestion from my uncle," he said. "I was nine or 10. He was always eager to talk to me about stocks."

Norman's experience is typical. Jannarone, in particular, points to his father as the reason he became fascinated with stocks. "I've been doing this since I was a little kid with my dad. Then, when I was 18, I opened my own account," he said, adding that he has had a passion for stocks for "as long as I knew what they were."

At times his hobby can become an obsession. One Friday morning last semester, he became distracted during a physics quiz. "I wanted to go back to my room and check something that I was about to move on," Jannarone said. "It's a lot more interesting than sound waves."