A Guide to Online Investing Getting Started Choosing the right broker on the Internet isn't easy. Online brokers chart Researching companies online; websites that can help. Beware of online scams.

Features The rush to invest online. Charles Schwab was one of the first online traders.

Sunday Columns Cash Flow: Finding personal finance information online Mutual Funds: Tracking information on mutual funds online. Investing: Glassman writes about trading stocks online.

By Fred Barbash
Washington Post Staff Writer
Sunday, August 23, 1998; Page H1

When I was a boy, in the late '50s, people we knew did not invest in the stock market. They had savings accounts and maybe some savings bonds but that was it. Stocks were for professionals and speculators. Anyone else who got into them was a fool. You could lose everything and have to jump out a window.

When I became a teenager, I remember asking an elder how I might buy a few shares. A few shares? He told me I really couldn't; that only "odd lot" dealers would take orders for anything less than a zillion. I didn't know what an "odd lot dealer" was and I didn't want to know: It sounded suspicious, under the table, on the corner. Psssst. Hey, Kid. You lookin' for odd lots?

At manhood, I started seeing ads in newspapers for mutual funds. This was the respectable way to invest. I knew my parents had bought in, so it had to be right. But these ads warned me not to buy without reading the prospectus. They provided a space so small for my name and address I suspected they didn't really want them. One time I sent away and got a prospectus. It warned me that the fund wasn't for everyone, couldn't guarantee anything; you could lose it all and have to jump out a window.

By my late twenties, I needed to diversify – certificates of deposit weren't building up much of a savings stash. Mutual funds were now acceptable, with whole magazines in respectable stores devoted to them. I finally bought a mutual fund.

From that point, my investing life stood still for a couple of decades. But one day in 1993, while I was looking for something to do with my new computer, I cruised CompuServe and discovered an electronic brokerage, beckoning me to send in $2,000 to open an account and begin trading. I had not heard of the company – E-Trade – and I had no experience buying stocks. But I thought, By God, why not me? I'm tired of being chicken. I mailed the check and became what is now called an "online investor."

It was one of the more reckless moments of my life and since has become one of the most eye opening. I've done fine, in spite of years of propaganda that said I wouldn't, shouldn't, couldn't, better not even try. No jumping out of windows.

I still feel as though I've crashed some party, though. I'm not sure I and the millions of other online investors are really wanted. There's still a lot of scary talk from well-intentioned commentators that what we're doing is really gambling, as columnist James K. Glassman wrote in these very pages. We are doomed, he predicts, to never equal, let alone surpass, the Standard & Poor's 500-stock index. The ignominy! I respect James Glassman. But these people just don't understand that the point of online investing is not competing with the S&P 500. The point is getting in the game.

Still Missing Out?

How many of you have spent years being sorry that you didn't buy say, International Business Machines Corp. years ago or later, Microsoft Corp. Raise your hands. Online investing, if done with some thought, repeat, if done thoughtfully, is a way to never have to say you're sorry again. There's no longer any excuse.

I could handle not having bought Microsoft. But to have been left out of the raging bull market entirely would have been truly depressing. Now that it's not so bullish, I suppose commentators are going to say they told us so, maybe this will teach the amateurs a lesson. In fact, the market swings have made online trading even more fun and challenging.

The critics say online investing makes it too easy to act impulsively, buying or selling whimsically, what with their being no voice saying, "Are you sure you want to do that?" Well, it's not the online part that makes you act on impulse. It's you. If you don't want to do it, don't.

Truth be told, I contemplated bailing out at several points, most recently last October. I tried to log on to my account to figure out how big the tax hit would be and kept getting a user authorization failure. I later learned, through a letter from my brokerage, that my user authorization was fine; there were just too many of us trying to get online. They called it a "simultaneous avalanche of pent-up trades," said they'd try not to let it happen again and apologized.

In fact, I am grateful. Had I sold I would have taken a big tax hit while watching my portfolio return to and then overtake its previous highs. Online trading's limits saved me from my pent-up trading desire.

Online Advantages

A lot of computerized activity is a complete waste. For example, almost everyone I know has abandoned computer address books and returned to Rolodexes or just, well, address books. The same for these appointment gizmos that leap out of your screen to remind you that you're due for a haircut.

In the case of electronic investing, the computer-based, online aspect is crucial. The reasons I suspect I didn't think to buy IBM years ago, for example, was that I could have afforded so few shares that the broker's commission – not to mention the embarrassment of saying "I'll take 10" – scared me off. But surely a few shares would have been better than no shares, which is what I got.

Online investment is cheap because the computer has eliminated the human being at the other end. It makes stock buying affordable. For people who aren't rich, a $300 commission is a deterrent; $19 is not. The absence of a human being also means nobody to sneer at you.

A Rough Start

It is tempting to be only "legally accurate" about the early years of my online career. In candor, it wasn't a promising beginning. The brokerage had some problems and so did I. Every now and then, they failed to execute what I considered crucial trades, offering only the glitch-excuse. (They've cleaned this up and the only glitch problem I had has been my own, when I got confused, entered wrong figures for a buy and for a sell, couldn't correct in time, and wound up with $10,000 more of something than I wanted. Luckily, the something was Lucent Technologies Inc. and it's been a fantastic performer). Also I was disappointed that their stock quotes were delayed 20 minutes – though now I don't care because I'm not a day trader, let alone a 20-minute trader.

Early on, I quickly realized that you couldn't do a whole lot of trading with only $2,000. So in the months after I signed up, I sent E-Trade any "found money" that came my way – tax refunds, small speaking or freelance fees, a bonus from my employer – until I had pumped in $25,000. With little knowledge of the stock market, I bought tiny stakes, 50 shares here, 100 there, only in obvious companies: Sara Lee Corp., which nobody doesn't like; Walt Disney Co.; AT&T Corp.; and Intel Corp., whose logo was on every computer I saw. My thinking was that while I might not get rich, with companies like these, I wouldn't go bust.

I took some genuine gambles with small and mid-sized companies I knew little about but that seemed to be moving up fast. I lost on two of these, but made enough on the third – a company called Wind River, which quadrupled – to cover all my losses, and take a significant profit (by my standards at least) that I could reinvest in something else. And those 50 shares of Intel I would not otherwise have purchased but for the ease of it all, are now worth seven times what I paid, not counting splits.

I grew impatient. Except for Intel, the others weren't exactly soaring, and as I got into it, I was seeing stocks that were. I was also learning about the lemming mentality of big institutional investors. A crummy earnings report appears on a solid company and they jump ship, plunging a stock into new low territory. A year later, the company does better and they all come running back. To me, this was a way to raise some money, so I dumped a bunch of idle stocks (nothing lost but not much gained either) and started buying well-known but depressed stocks with the idea of selling them when they recovered to a certain point and using the proceeds to buy shares I really wanted for the long term. No brilliance in this insight but it has worked for me.

The most recent case in point was Eastman Kodak Co. When a solid company like that falls from a high of $90 a share to $60, it's a fairly easy call that it will at least return to $70 or $80 sometime in the next year. The worst case is that it won't return and you're stuck with it – not a horrible fate. I bought at $63. As it turned out, it moved back within less than a year to the $80s; I sold, kept what I would need to pay the capital gains tax, and used the money to purchase more Lucent, which was soaring.

Little vs. Big

This is why we little investors still need the big ones. I give the Kodak example because it worked (others have not, or at least not yet). It also illustrates the uses of online trading. The software allows you to easily track companies that are rising or falling. You can see all the news coverage every day about your stocks or others that you've put in your "stock watch." You can even arrange to have an e-mail automatically sent to you when a company's stock reaches a certain level. You can instruct the electronic brokerage to buy when it hits that level and sell when you've made the profit you need to buy a better stock.

This is also a wrong approach to investing, the experts say. Buy to hold or you're a fool. My philosophy is to buy to make money. If that means holding, fine. If it means selling, fine, too.

I'm not trying to give advice here. I am not qualified, not licensed, I'll get in all kinds of trouble and so will you. You might have to jump out a window. But these experts have been wrong since I was a boy and they still are. I have now concluded that all those years they were confusing investing with plumbing. That, I wouldn't even try.

Fred Barbash is an editor in The Post's Outlook section. Post reporters and editors must disclose their investments and generally cannot write about companies or funds in which they hold shares. Post business reporters must hold investments at least six months before selling.