Investing as an addiction
Investing is certainly a daily pop culture item. Internet
stocks are in the limelight as they grow to new heights in the stock
market. Day traders and online trading venues have sprung up all
over the map. Meanwhile, financial magazines, television programs,
radio shows and newspapers all offer us the latest opinion on what
stock to buy and which direction the Dow will go next.
"The business section has become the sports page,"
remarks Mark Beauchamp, director of media relations for the North
American Securities Administrators Association in Washington. "We
used to read the box scores. Now, we check on our mutual funds."
But at what point does a person cross the line from
savvy investor to having an addiction that requires a 12-step program?
Might as well face it, you're addicted to stocks
An addiction can occur anytime someone has complete
access 24 hours a day to a compulsive process -- whether it be gambling,
sex, drugs or stocks, explains Dr. J. Michael Faragher, co-director
for the Metropolitan State College of Denver's Center for Addiction
Studies. The fact that the stock market is slowly converting from
a 9:30 a.m. to 4:00 p.m. trading regimen to a 24-hour all-access
pass greatly concerns Faragher. He points out that no true addiction
can occur when people can get a pause from participating in the
"Traditionally, the delay prevents people from becoming
addicted," says Faragher. "A lot of people think the world's going
to change dramatically with [24-hour] online investing. ... You
look back five years from now, and this could seriously change the
economy. People sell homes and cars for [gambling in] Las Vegas
now -- where the odds are stacked against them. Imagine what they'll
do [with uninterrupted access to stocks] when the odds are in their
Patricia Farrell, licensed clinical psychologist in
Englewood, N.J., adds: "It's like feeding a narcotic. People start
saying, 'I have to get a T-1 line. A day trade place.' They work
themselves up in a lather."
Farrell refers to the phenomenon of day trading. Day
traders -- people who buy and sell stocks on a day-to-day basis,
often risking several thousand dollars at a time on a whim -- are
especially susceptible to compulsive behaviors and addictive personalities.
Mark Brandon, registered principal for Milestone Financial, a day
trading firm in Glendale, Calif., is certainly aware of the dangers.
"People who get addicted to trading employ the same
destructive habits as a gambler," Brandon suggests. "It's impossible
to tell if a particular trade comes from a problem gambler or a
legitimate trader. But if we see someone taking larger and larger
risks, it's a sure sign of a problem."
Taking responsibility for your own actions
Brandon adds that Milestone Financial has guidelines
and that a trader can't fall below a certain minimum level, which
he did not disclose. He feels that regulations are not necessary
to prevent an addiction to day trading. Instead, he feels that people
need to exercise self-control and companies need to be honest with
the day traders about the real possibility of completely losing
"Number one for the firm to do is to make sure people
understand the risk before they start," Brandon insists. "One-third
of the people will lose money in a few months and quit. One-third
will make a little or not make a little. One-third will make enough
to justify it. Of those, one-tenth will be the superstars."
The NASAA's Beauchamp believes that the steps Brandon
is taking are necessary to inform day traders of the long-shot odds
against success. Still, Beauchamp feels that day trading is not
for the faint of heart, and he likes to mention the current joke
that asks, "Want to know how to make a million dollars? Start with
two million and become a day trader."
"Additional regulation is not as important as education,"
Beauchamp says. "Our main concern is that firms disclose the risks
instead of hiding it. It's easy to get addicted to both day trading
and trading from home. It's like a drug. You feel powerful."
If it feels good, don't do it
So, what can people do to prevent themselves from
becoming addicted to investing? Is there a need for local branch
chapters of Investors Anonymous?
"If you have a personality toward a compulsive behavior,
it will become a problem," Beauchamp stresses. "People need to take
their own temperature before they get into day trading and online
trading. They periodically need to make sure it's not ruling their
lives. ... If it takes over your life, and your relationships and
health begin to suffer, you need to take a step back."
When coping with an addiction to any problem, from
gambling to sex to investing, a person has to admit the problem
from within. Otherwise, like a cancer, the addiction will grow.
"Similar to racetracks and casinos, firms shouldn't
be Big Brother," Farrell states. "It's a personal responsibility.
You can't play it off on the other person. Like a problem with alcohol,
people tell you to stop. But you have to decide for yourself.
"Whenever you want to do something impulsively, give
yourself 15 minutes to a half-hour to get away and come back. Look
at the reasons not to do it. If the reasons not to do it are still
there, then don't do it. Break that compulsive cycle."
Beauchamp warns that people typically get addicted
to things that give them pleasure. Too much of a good thing is just
that: too much.
"People are addicted to anything that feels good,"
he cautions. "People will follow Internet stocks for the positive
reinforcement when it goes up five ... 10 ... 100 points. They'll
jump on the next one. People don't get addicted to stuff that feels
bad -- except S&M clubs. Most people like to repeat something
that feels good."
We make money the old-fashioned way ... we earn
Finally, Beauchamp reminds people that the first rule
of non-compulsive investing is to buy and hold. He cites his parents
as an example of the proper way to invest. Beauchamp says they were
middle-class people who held their investments for 30 years. Today,
they are making a very comfortable living.
"You don't get rich quick. You get rich slowly," he
advises. "Real wealth is earned the old-fashioned way. Don't get
swept up in manias. The bubble will burst. You have to be skeptical.
... I'll match my parents' performance with any day-trading whiz
kid. The day trader will wind up with an ulcer and addicted to Coke
-- Posted: March 23, 1999