Psychologist Offers Some Advice to Online Traders (and He’s One)

The bullish stock market of recent years has attracted millions of traders online, hoping to strike it rich with a few clicks of the mouse.

Online trading, which offers speedy transactions at relatively low cost, seemed like a boon to investors hoping to take charge of their financial destiny.

However, online investing may have lost some of its luster with the stock market’s volatile swings. Easy riches have evaporated, and scores of online traders have discovered firsthand the perils of buying and selling stocks on the Internet.

A few of those chastened traders have ended up on the couch of Steven J. Hendlin, a clinical psychologist with a practice in Irvine. The 51-year-old Corona del Mar resident has heard their tales of woe about losing it all on the Net or becoming addicted to online trading.

Hendlin, a graduate of UC Berkeley, is more than a sympathetic listener. He’s an active online trader who has has written “The Disciplined Online Investor” (McGraw Hill). The book advises investors how to manage their thoughts and emotions while trading online.

He was interviewed by Times staff writer Marc Ballon in his book-lined office, occasionally eyeing stock quotes on a computer monitor behind him.

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Q You have compared online investing to a gold rush. What do you mean?

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A It’s like a new age of investing. People are jumping on the wagon. They all want to strike it rich.

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Q Is this good or bad?

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A It’s both. It’s good in the sense that we get the empowerment of managing our own finances, learning about the stock market, caring about investments. It can be bad if we get sucked into the power of online trading, so it needs to be done with a sense of control.

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Q In your book you write that people should know their personality tendencies before going online. What does that mean?

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A It means knowing something about your own finances and something about your own tendencies--whether you are able to handle the anxiety and fear that come up, for example, with short-time trading. If you can’t handle the emotions it’s best for you to do long-term investing. Certain people should not be doing online trading.

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Q Who should not be trading online?

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A Those who have poor impulse control. Those who need to get in with more and more money to feel the excitement tend to end up with real problems. People who are trading because they want to escape their problems and want the adrenaline rush because they’re depressed are trading for the wrong reasons.

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Q Who is best suited for online trading?

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A A person who is educated, methodical, willing to pay attention to detail, likes to learn, and is not afraid to dive in. Someone who can develop disciplined habits, combining those with an element of what I call “gambling impulsive.” They like the risks enough that they’re able to get a certain excitement rather than fear.

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Q What are the advantages of online investing compared to investing through a broker?

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A The primary advantage that most people see right off the bat is simply the price. You are paying $5, $10, $15 rather than $100 or more for a full-service broker. If you’re the kind of person who likes managing your own investments and wants to make your own decisions this is going to be for you.

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Q What are the disadvantages?

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A The ease with which we can get out of control because of the excitement and the adrenaline. With a few clicks of the mouse you’ve bought stock, you sell stock. It can become addictive. You also have to deal with the emotional ups and downs of your own decision-making rather than putting it in the hands of a professional.

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Q Is it easier to become addicted online than through a broker?

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A I don’t think you could become addicted through a traditional broker. The process itself makes it tougher and gives you more of a chance to consider your trades. You have to make a call, you have to discuss it with your broker, you get feedback from your broker. He makes the trade. It isn’t instantaneous the way the online trading is.

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Q How does someone know when he or she has become addicted to online trading?

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A They are preoccupied with trading. They’re thinking about it, reliving past trading experiences. They’re thinking about ways of getting money to trade. They seem to need to trade with increasing amounts of money and numbers of shares to feel that desire and excitement that they want to feel. And they have repeatedly been unable to control or cut back on their trading.

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Q What are some of the reasons patients come to you regarding online trading? When did it begin?

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A It happened more with the bull market last year as more people began to feel like it was a no-lose situation. People would come in with trader’s block--they had lost money and were having trouble pulling the trigger. I try to analyze what happened so they can work through their fear.

Another issue is that they’re getting in too deep because of greed. They’re over-investing. We had one 28-year-old guy who came in. His wife was complaining that he had lost $10,000 that they couldn’t afford to lose because he invested on margin and used a credit card with 18% interest.

That’s the kind of thing that can happen when people think that the market can only go one way.

Another issue that people are seeing as a result of the bull market is what we label “windfall profits envy,” where a friend or a relative does so well in the market that you find yourself feeling all this envy over the ease with which they made money. It feels like they won the gold rush and here I am and I haven’t gotten it.

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Q What can people do while they’re trading online to keep their wits about them?

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A One thing to do is get up and walk away from the computer. It’s important to have some mental/emotional tools in place when you find yourself feeling anxious, when you’re too excited.

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Q What kinds of pressures are on people who are day trading?

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A One pressure is if you’re trying to make a living with it. My suggestion is do day trading with a small part of your overall investment portfolio. Do not depend on it for your income because you’re going to feel such pressure with the market’s ups and downs.

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Q Why do you favor people trading at home?

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A You have more control over your own environment. You can get up and walk away. There’s less pressure to join the herd.

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Q But isn’t isolation a problem in online investing?

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A It’s one of the things that can come up when you’re in your own home. I suggest that people be tuned in either to online traders’ rooms or have groups they can meet with to get outside feedback. There are traders’ groups in Orange County and Los Angeles for people of like minds who want to get together.

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Q How can people discipline themselves when they’re doing online investing so they don’t fall victim to the fear of a plummeting stock market or the greed of a bullish stock market?

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A You need to know your own mind, your own emotions. It takes time and this is why I’m an advocate of techniques like meditation--developing the strongest rational mind that you can to counter the strain. Meditation helps you create a mental space to consider without springing into action and end up 10 minutes later regretting your behavior.

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Q How does yoga or meditation relate to investing?

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A Being able to see a larger picture--that there’s more going on than making dollars in stock trades, than my ego being on the line for how many dollars I’m making or how many possessions I have. When you have that bigger picture you realize that losing $1,000 or more a day is not going to make or break you. Even if you think it is, it’s not the end of the world.