If you think
sandwiches and stocks don't have much in common, just ask Eddy Sweileh.
Impact of Online Trading
by Cory Johnson
Freddie's Sandwich Shop, on a sleepy corner of San Francisco's North Beach
neighborhood, is an unlikely epicenter in the world of online trading. But I
know of no other place that better illustrates the degree to which the trading
of stocks on the Internet has altered our world.
Freddie's is a tiny deli in a residential neighborhood, a 10-minute walk from
the financial district in one direction, Fisherman's Wharf in the other. You
could pass the place a dozen times before you noticed it. Its only sign is a
perfunctory "Freddie's" logo painted on the front window.
Fewer than a dozen people can cram into Freddie's at a time, and at lunchtime,
they do. His sandwiches, you see, are neighborhood classics. Hungry fans
descend on the shop midday, double-parking their pick-up trucks and BMWs on the
street outside. Behind the deli counter, Eddy Sweileh, his wife Rosalia, and
two helpers crank out the coveted sandwiches one at a time. Sweileh, of
Lebanese and Jordanian decent, is in his early 40s, just short of six feet
tall. He's quiet and hard-working. A few chairs and a bench outside are as
desired as his sandwiches: When the rest of the city is soaked with fog, the
sun somehow still seems to shine over this urban hamlet.
Freddie's might be a world away from daytrading. Yet there are clues to its
status as an embodiment of online trading. The old Zenith next to the deli is
not tuned to a soccer match but rather to CNBC with its tell-tale ticker
framing the bottom of the screen. Sweileh is cordial with his regular
customers, but not to the point of distraction. At all times, he keeps one eye
on the cash register, the other on CNBC. To most, he's just
Eddy-the-sandwich-guy—they already feel in-the-know if they avoid calling
him "Freddie." But few of his customers know Sweileh as the fervent online
trader that he is.
Eddy-the-sandwich-guy is not alone in his passion for trading stocks over the
Internet. Over 23 million Americans have caught the bug.
Sweileh rises early every morning, long before his shop opens at 11 a.m. Most
mornings he's already online at 6:30 a.m., ready for the market open. His
Ameritrade account is fired up and at the ready. He's not frenetic; many days
pass without a single trade. But Sweileh is an active trader. His take from a
three-year-old AOL position has funded all sorts of trades, in and out of the
latest trends—the Nets, the telcos, the B2Bs. (In the daytrading universe,
there is little time to spell out "Internet stocks," "telecommunications
stocks," and "Internet business-to-business stocks".) Sweileh jumps into hot
names, and jumps out before they can hurt him.
Sweileh is not the only one watching the tape. As the line slowly moves
forward, a handful of 30-somethings in chinos and open-collared shirts eye the
screen as they talk about interoffice politics or ski weekends in Lake Tahoe.
Then the CNET symbol scrolls across. Conversation stops. "Whoa, another dollar
and I won't be underwater," says one, to a laugh.
Freddie's has always been a business of regulars. Once it was the second
generation Italian-Americans for whom North Beach is so well known: The late
mayor Joe Alioto stopped by regularly for his Italian combo—pepperoncini and
mustard, no tomato, no mayonnaise, no lettuce. But now Dotcom-ers dominate the
crowd. CNET headquarters lies just down the hill, and at Freddie's a group of
them gathers each day for lunch. Like Sweileh, many of them dabble in online
trading. And the rest of them have their heretofore unimaginable personal
fortunes tied up in CNET stock - just the type of stock Sweileh
Leading online trading companies
ranked by assets, in billions of dollars. See full graph
A boom on the Internet
amateur online trading has swept the nation. Ten years ago it was
inconceivable, but as the 1990s drew to a close, online brokerage accounts had
grown to more than 23.1 million, according to a recent report by Credit Suisse
First Boston. The same study said the major online brokerages—led by Schwab,
Fidelity, TD Waterhouse, Quick & Reilly, Etrade, and Ameritrade—now hold
some $1.3 trillion in customer assets.
As new online traders have flocked to the market, they have shown themselves
eager for new stocks to trade. Investment banks have been more than happy to
fill that need, bringing new companies public by the dozen. And through trial
and some error, they've found that these new traders covet one type of stock
above all others—the Internet stock. The growth of Internet initial public
offerings, or IPOs, has closely followed that of online trading. E*Trade, for
example, had 485,000 accounts at the end of the fourth quarter of 1998. That
same quarter saw 10 Internet IPOs. Nine months later, E*Trade had some
1,200,000 accounts, and the market saw 67 third-quarter Internet IPOs.
This graph shows the precipitous rise of Internet
initial public offerings, both actual and scheduled, from 1997 through the
first quarter of 2000. See full graph
These Net stocks, of course, have created tremendous wealth. IPOs provided Net
companies with more than $1.5 billion in December alone, according to IPO
Monitor. Though not successfully in all cases, those companies spend that
money, which finds its way back into the economy, including the back of
Freddie's Sandwich Shop, where the whole process starts over again.
The impact of these online traders on the markets has been felt widely, if not
deeply. Such sometime traders have made a volatile market even more volatile,
and professional traders say they have had to be on the lookout for stocks that
suddenly start to move, fueled by the actions of these newcomers.