Sunday, July 19, 2009

Thoughts on the Changing Demographic Face of Trading

In the previous post, I outlined some of the challenges faced by the children of the baby boom generation. Now we take a look at a different picture: how those affected by economic crisis might be looking toward self-directed trading and investment as a way of taking control of their futures.

It's interesting that, in this difficult economy, we see a brokerage firm such as Schwab report 197,000 new accounts for the second quarter. E*Trade as well is reporting record numbers of accounts. Interestingly, net new assets from financial advisers and retail clients at Schwab have fallen with the general decline in markets, but daily trading activity is up 20% year-over-year. These traders and investors mostly withdrew funds from low-yielding money market accounts and put money to work in taxable bond funds and international stock funds, not large cap domestic stocks.

In short, they're battling; they're seeking opportunity.

The past several trader events that I have attended have been notably filled with mid-career aged men and women. Earlier, I would encounter far more young males. Similarly, a sizable proportion of people who ask me about joining proprietary trading firms are married men and women, long out of school. In the past, I would say that 90% of queries came from men either in college or recently out of school. When Don Miller announced his training program, it did not surprise me that the average age of his students was in the 40s.

To be sure, trading is not exactly the kind of secure occupation with benefits that many mid-career individuals might be expected to seek. What I hear from many of these newer market participants is that they feel a need to take control of their lives. Some are looking to take control of their finances after receiving disastrous buy-and-hold advice from advisers. Others are looking to take control by creating jobs for themselves when traditional alternatives are lacking.

Many see trading as ultimate control: you eat what you kill; your income is solely dependent upon your efforts and your success.

Think of those who are traumatized by child or spouse abuse, by violent crime, or by debilitating accidents. In every case where there has been a psychological recovery, it has been because the victim rose above victimhood and found ways to regain control. For many people, it seems, self-directed trading and investment have become a means for crafting a future in the wake of economic losses and tattered social contracts.

It's a sobering lesson, but it's also empowering: You cannot rely on any outside agent--not government, not employers--to secure your financial future. As one who works with traders, I worry for those who enter the market arena without proper training and preparation. As a psychologist, however, I laud the entrepreneurial spirit that leads people to rise above their losses and pursue fresh, creative horizons.