THE on-line investor is changing the way Wall Street does business.
Armed with a personal computer (PC) and special software, some savvy investors are picking their own stocks and making their own trades. This trend has pulled large discount brokers, such as Charles Schwab and Fidelity Investments, on-line. Full-service brokerage houses are also considering making the move.
"They are planning to enter the marketplace," says David Brown, author of "Cyber-Investing," a new book on computerized trading, and chairman of Telescan Inc., a Houston-based on-line information service. "I don't think any of the brokerage firms can afford not to be in."
There are two reasons for this. The first is that customers who make their own trades are cheaper to handle. Schwab, for example, offers a 10 percent discount for on-line trades. Second, the ranks of on-line investors are swelling rapidly, and brokers don't want to miss out on potential business.
Already, some 600,000 brokerage accounts are traded by computer, estimates Forrester Research, a Cambridge, Mass., consulting firm. By 1998, the firm estimates the figure will be 1.3 million. Mr. Brown says his sources expect at least 3 million accounts on-line by 2000.
"There's definitely been a significant amount of growth," adds John Bajkowski, editor of Computerized Investing, a bimonthly newsletter published by the American Association of Individual Investors. "People can relatively easily get a computer and gather information and go on-line." More people will do just that as technology costs drop, and investors' comfort level with computers rises.
Already, well over half of the association's members own a PC. Two-thirds of Schwab's active accounts are held by customers who have a computer. In May, 55 percent of the firm's incoming calls and 35 percent of its trades were handled through Schwab's automated-phone or on-line services.
Already the leader in on-line investing with more than 200,000 on-line accounts, Schwab is pushing hard to attract more investors. It is giving away its StreetSmart software to active traders.
PC Financial Network - No. 2 with 175,000 accounts - lures customers by offering lower commissions for on-line trades. And instead of building its own network like Schwab's, PCFN has linked up with America Online and Prodigy. The company, which is part of the Pershing division of Donaldson, Lufkin & Jenrette Securities, also has ties to Reuters Money Network and Apple Computer's network service, eWorld.
For its part, CompuServe offers at least two on-line brokers and financial research tools.
Another important feature of the on-line services is the investor forum - a place where individual investors can post questions and compare notes about firms, strategies, and financial trends.
For all the hype surrounding the Internet, the granddaddy of networks, brokerage houses are cautious about jumping in. Several are beginning to post promotional material there but are not conducting active trading. "We don't feel all the security issues have been worked out on the Internet," says Stephen Killeen, PCFN's marketing vice president.
"From an investment standpoint, there are certain jewels available on-line" with the Internet, Mr. Bajkowski says. "The Edgar database of fundamental data [from the Securities and Exchange Commission] is available inexpensively. Beyond that, it's hard to find" relevant material.
Increasingly, on-line brokers offer one-stop shopping. With one call through their computers, investors can screen stocks, compare mutual funds, and make trades. Brown expects to offer far more services within the next 15 months, including 24-hour global trading, an advanced dynamic asset-allocation system, three-dimensional charting, and perhaps even a software agent that "learns" customers' preferences then fetches stocks they might want to consider.
The move to on-line investing will not put the stockbroker out of business. Brown, for one, still uses a broker for his investments. And Schwab continues to open new offices around the country - up to 25 more this year alone.
"This is not taking the place of the branch office," says Schwab spokesman Tom Taggart. "When you're dealing with your own money, you want to see who you're giving your money to."
Still, the PC is here to stay in the investment business, and brokers will have to adapt, on-line firms agree. "If there's one area [in which] computing - and the tools that computers offer you - makes sense, it's investing," Brown says. "It's a number-crunching business. It's a business where information is king.... I can't imagine that there will be many serious investors [who] won't be computerized investors in the next few years."