In a market in which shares yield no dividends, traditional investment is meaningless. Trading on the future profits of a company should be the exclusive domain of the true believer and other victims of their own naivete. Why then, were these companies attracting such vigorous attention? How did they give rise to the day trader, by definition the opposite of a true believer? The day trader placed no trust in the stocks he played. Ending each day with no money invested means never being fooled into thinking a company is worth a single cent. To a day trader, "investor" is a term of derision.
A market in which stocks were valueless had resulted in a breed of speculator who placed no value in stocks. Shares became tokens of less importance than poker chips in a game of chance, where the winnings went to the swift; those who could get in before the rush to buy and out before the rush to sell. This transition was often measured not in minutes or hours, but seconds.
The activities of the day trader bear more resemblance to those of a racetrack tout than a serious investor. Always looking for a hint of where the market will jump next, the day trader compulsively follows business news, buying in at the first mention of a dot com share on a major network, without even waiting to hear if the news is good. It doesn't matter anyway. Stocks have run on bad news and dropped on good news. You never can tell.
Day traders were the pump 'n' dump hustlers and the cynical gamblers of the new economy, but the profits they took had to come from somewhere. The ludicrously over-valued IPOs that were the mark of the dot com market were funded with cash poured in by ordinary people who had bought into the hype of the market, who believed there was money for nothing if only they were willing to reach in and grab it. Typically entering the market via online discount brokerage houses such as E*Trade and Schwab, the ordinary investor was easy prey for day trader sharks, who connected to the market via electronic trading networks that placed them directly in the market, rather than being at the mercy of slower, less reliable web interfaces and the relative sluggishness with which the brokerage houses were willing to execute orders.
The brokerage houses made their money not only from the ultra-low fees they charged, but also from skinning their clients. It has been claimed that the brokers always shorted the investors by accepting the investor's money, but not purchasing shares until the price had dropped below the value that the investor had paid, and pocketing the change. It was a lucrative scam, if the claims are true, and there was always another sucker waiting to be taken thanks to the advertising success of the online brokers.
Anyone who recalls the campaigns run by Schwab and E*Trade will have noticed that the common theme was not only of ordinary people hitting the big score, but also of the average man winning out over the savvy, business-suited marketeer. The message the brokerage houses peddled was that there was enough money for everyone, so long as they were willing to take a chance. Not only that, but for once they could beat the yuppie at his own game.
The ad campaigns were effective enough to ensure that hordes of ordinary people were eager to fork over their cash for whichever pie-in-the-sky stock had rolled across the business news last. These people were the primary victims of the dot com mania.
The collapse in the dot com stocks sucked over three trillion dollars out of the Nasdaq without producing a nickel of economic growth in the long run. That money didn't simply go "where the woodbine twineth." It vanished into the pockets of the day traders and dot com bandits who took Joe Sixpack for a ride yet again. From the South Seas bubble to the great depression to the junk bond market to the dot com crash, the story repeats itself: slick professional traders and brokerage houses get away with the loot, while the small investor gets stuck with the bill.
Traditionally, the villain of the bull market melodrama has been the conniving businessman, always one step ahead of the innocent investors who are just looking for their piece of the action. In the aftermath, it is those who fit this image that have taken the fall for the crash in the public consciousness. This time around we may see a change to the cycle.
The rise of the dot com stocks was associated not with bandits in three-piece suits, but with the geek entrepreneur. This association changed the way the geek was viewed by the media and the community. No longer was he the bespectacled nerd, intensely passionate about things which ordinary people found weird or boring. He was reborn as the hacker with the billion dollar idea. The popular story is that of the start-up founder building his business, making his pile and living a life of ease and wealth. The reality is not necessarily so rosy.
Despite the fact that geeks are as much victims of the dot com crash as investors, it may be that the geek is going to take the fall this time. The close association of the geek image to the dot com industry might lead the public to identify geeks with their lost retirement fund. Even if this fate is avoided, it seems unlikely that geeks will continue to enjoy the upmarket image that the new economy provided them. As the environment that gave geeks validation melts away, will the cool geek image outlive it?