Lay Off the Day Traders, You Wretches and Snobs

What’s this: We’re still hung up on day traders?

As the bull market rolls on, the old-media aristocracy (most recently, The New York Times Magazine , on Nov. 21) continues to obsess over the solitary obsessions of the day traders, as though this straggling lot of wired, manic investors holds the key to understanding the new age of money. You would think that the day traders, alone at home with their mousepads and their cute little Schwab accounts, have pushed us to the edge of some kind of national disaster.

It’s a class thing. Day traders are considered low-rent losers, delusional suckers. So they get blamed for a market that seems to have lost its grounding in fiscal logic.

Well, the media establishment has it wrong. The term “day trader” is a convenient fiction, because most of the big institutions out there, the ones that move around huge chunks of money and make up the majority of the market, are day traders, too.

Day traders are not some exotic species, despite the media’s best efforts to make them seem that way. The media should fess up: they know day traders, lots of them. But the ones they know are hedge-fund managers or other types of traders with cooler-sounding names: proprietary desk traders, for instance. These institutional traders move in and out of positions all day, too. The term day trader, in the current media parlance, is code for “hedge-fund manager without investors or a good college degree.” Day traders have no backers among the chattering classes, because the chattering classes have decided to revere hedge-fund managers instead, though most hedge-fund managers do exactly what day traders do, just with other people’s money and better institutional connections. Day traders are crack; hedge-fund managers are cocaine. Pick your poison.

Day traders have become the poster goons of all that’s wrong with the stock market. They get suckered by two-bit promoters into a life of debt and solitude. They go on violent rampages. They ignore history and its lessons concerning the received wisdom of long-term investing. They work in spare bedrooms, in the company of skinny dogs and smelly hockey equipment. In short, they are the new barbarians.

But day traders make up a thin sliver of the market. There just aren’t that many of them. Some estimates put their number in the low tens of thousands. They are really just pilotfish swimming alongside the great white shark.

Now, there are lots of people who have become do-it-yourself investors, who do their trading on line and make investment decisions a few times a quarter, maybe even a few times a month. This group numbers in the millions. You know these people. But, conveniently, the media (especially the old media) often uses a negligently broad stroke to lump just about everyone with an Internet connection and a brokerage account together and call them day traders.

It’s not hard to see why. The old-media nobles, whether they like it or not, are complicit in preaching a very conservative world view of investing. On panel after panel, I hear personal finance journalists from dead-tree publications talking, with a pained tone in their voice, about the perils of day trading, with nary a word about the cowboys who dominate the trading desks of every major firm on Wall Street, placing billions at risk, or the aggressive mutual fund managers who attract thousands of clients. Most personal finance stories imply that you should entrust all of your money to professionals, invest for the long haul and avoid getting caught up in the excitement. Leave the excitement to the professionals. Whaddaya know, this is exactly what both Wall Street and the mutual fund complex want you to do. They want to take your chances for you-for a fee, of course. I’m sure it’s all a terrible coincidence.

My view? Day trading is a wickedly hazardous occupation. I wouldn’t do it. I wouldn’t even recommend it. But the same goes for running a hedge fund or managing a mutual fund. I’ve watched friends flame out on those desks, skewered by the nasty nature of the trading game. It is not easy.

Risk is part of the stock-market business, whether you’re talking about the day traders at home or the arbs at Goldman, Sachs & Company. Hedge funds blow up all the time. Last fall’s spectacular mess at Long-Term Capital Management L.P. far outstrips anything day traders could pull off, even if they banded together. Yet the long-term gang continues to operate, having found flush saviors-and articulate defenders-in their time of need.

So the next time someone spits out the term day trader, spit it bright back at them.

Dave Kansas is the editor in chief of . Lay Off the Day Traders, You Wretches and Snobs