Some thought individual investors were scared out of the market for good. This hasn't been the case.
January 21, 2004: 9:05 AM EST
By Justin Lahart, CNN/Money senior writer
NEW YORK (CNN/Money) - Way back in the dark ages, a little more than a year ago, you'd often hear Wall Streeters grumble that America had lost an entire generation of investors due to the bear market.
Nothing could have been farther from the truth. Instead, individual investors are happily reaching for the stove again -- confident that they'll be able to pull their hands away before it gets too hot.
Wednesday morning, E*Trade Financial reported that trading activity in its online accounts increased by nearly 46 percent in the fourth quarter versus a year ago. The margin loans that it extended to its customers rose by 83 percent.
This follows on Tuesday's announcement from Ameritrade that trading activity among its customers rose by 24 percent in the fourth quarter and that it has seen a surge in online trading this month.
Both companies posted record profits, and both have seen their own share prices gain in excess of 80 percent over the past year.
Meantime, in another sign that individual investors are happy to speculate in the market again, there's been heavy interest in penny stocks. On the OTC Bulletin Board, where stocks that lack the criteria needed to make it onto the New York Stock Exchange or Nasdaq Stock Market, an average of 1.36 billion shares changed hands daily in December, up from a daily 512 million shares in December 2002.
The 1929 crash and the shellacking of the Nifty Fifty stocks in the early 1970s both fostered a deep mistrust of stocks among individual investors, but this time it seems like the mistrust has got placed someplace else. It's not stocks' fault that we lost money, and it certainly isn't our own fault -- it's brokerage firms'. TD Waterhouse has even taken to running ads (with stolid Sam Waterston of "Law & Order" fame) showing an individual investor complaining that her Wall Street broker is stealing her ideas.
The knee-jerk reaction to all of this is to say that we didn't learn anything from the bubble, and that we're doomed to make the same mistakes again until, poorer than we are now, we figure it out. This may turn out to be true.
But it's also true that, unlike past bubbles, during the late 1990s the technology became available for individual investors to participate far more directly in the market than in the past. A lot of people learned a lot about trading and, regardless of whether this is a good thing or not, they can't unlearn it now.
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