The Death of the Old Way

When 32-year-old David Gennrich left the rough-and-tumble world of floor trading at the Chicago Board Options Exchange to trade stocks with a handful of partners from a Chicago office, the booming bull market was his oyster.

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On Aug. 31, just a few months later, the Lake County, Ill., Sheriff's Department found Gennrich dead in his Porsche Boxster, the car aflame along a Route 176 service road and a gunshot wound to Gennrich's head. In late October, the county sheriff and medical examiner both officially classified his death a suicide.

While a complete portrait of Gennrich's situation remains elusive, people familiar with the trading at his firm, Marlin Securities, said he was distraught over losses incurred trading Yahoo! (YHOO) shares, losses that he concealed from his partners. (Similar behavior in 1999 got him suspended from the CBOE floor.)

To label Gennrich's demise a microcosm of the bull market's collapse would be a stretch. But his death did roughly coincide with an end to an investment landscape that helped define the incredible stock market run of the late '90s. Gennrich was among scores of professional traders who saw trading their own accounts as a lucrative alternative to the daily grind. Their ranks were filled, as well, with civilians-turned-daytraders who had left their 9-to-5 jobs, mortgaged their homes, and, if allowed, would've likely used beloved family pets as margin collateral.

Among the trash heap of the 2000 are two hallmarks of the old market: Big momentum in the market and the dominance of the individual investor. We are now in a market short on momentum and firmly back in the hands of institutions. It began in late March, when tech stocks began to crumble and investors who had borrowed money to buy stocks through margin accounts had their loans called in by brokers. That sucked considerable buying power from the individual investor base, and began to shift the balance of power back to institutional investors.

The e-commerce companies that individual investors had jumped into fell precipitously during 2000, roughly 70%, according to a recent study by Mercer Management Consulting. Business-to-business marketplace, consumer commerce portals and application service providers fell about 80% in 2000.

Times have changed. On eBay (EBAY), one erstwhile options trader is auctioning off an Omega Research Tradestation software package for $500 that seems less useful these days. Meanwhile, leading online brokerage Schwab (SCH) reported last week a 15% drop in November trading volume.

"Everything investors learned the past few years they should forget," says hedge fund manager Kyle Rosen. "It's now that we're returning to normal from a once-in-a-generation occurrence."

Sean Kelleher, the head of trading at New York discount brokerage Wall St. Access, says he sees retail investors heading back to full-service brokerage firms for professional advice. That's a sure sign things have changed.

Yet even the pros are dealing with some new factors -- such as the Securities and Exchange Commission's Regulation Fair Disclosure -- that will keep them guessing as well in 2001.

"This year has been murderous," Rosen says. "Lucent (LU), Home Depot (HD), Qualcomm (QCOM), one after another chopped in half. How do you operate in either [last year's or this year's] environment?"

That violent swing from 1999 to 2000, Kelleher and Rosen surmise, is what's driving investors back to their loving, if costly, embrace of full-service brokers and professional money managers. "The money will go back to mutual funds," he says.

The absence of daytraders and hyperactive individual investors has shown some results in the second half of 2000. "You're not going to have the volatility. There's nobody running up stocks like Yahoo! to $250," Kelleher says. "The problem was that in 1997, '98 and '99, you just had to be long the market. Now the problem is the growth investors don't see growth and the value investors don't see value."

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