bobmsmythe

A lot of our order flow is electronic now, but when things get really bad, the phones just ring like nothing you've ever seen or heard from. We give special numbers, private numbers, to our biggest clients. You have to remember, too, that most brokerage houses these days also have investment banking arms and the institutions have the advantage-- they've got the big volume AND the information so they get their trades in and out first. I've heard from some guys who were around in '87 that they got the word to just not answer the phone. That's why the SEC started mandating all the electronic quoting measures that we have these days, so the brokers can't shut their clients out completely. When there is a crash, though, you find 2 things happening. First, there are the guys who didn't see it coming-- their clients are calling and screaming. Every time this happens some of these guys get creamed. The others-- and this is maybe 5%-- had the good sense to get out before it happens and they are mostly *buying* stock, both in their own personal accounts and for their biggest customers. The general rule of thumb is that any big move is going to "give back" about a third to a half, so if you can pick the bottom on a dump it's a good way to make a quick buck.


Penny stocks are a fool's game, for a number of reasons. First off, they're too volatile on too little volume. Say you put 200 bucks into a stock trading at a nickel. Now you own 4000 shares. Penny stocks jump around all the time, up 20%, down 20%. But, your 4000 shares might make up a large percentage of the trade volume on any given day. Thus as soon as you've made a paper 20% and try to sell, you're likely to drive down the market. Also remember that it's *much* easier for something to go to zero than it is to go to a buck. Going from a nickel to a penny is a decline of 80%. Going from a nickel to a quarter is a gain of 400%. Realistically, the only reason a stock is even trading on the bb's is because it couldn't get listed on a real exchange. Nasdaq isn't *that* stringent in its requirements, so to be a bb issue a company has to be on really questionable footing. The only guys who make serious money on these are the pros, guys with knowledge of the industry and of specific companies. Most of them are crooks. One last thing, if this hasn't dissuaded you already, is that bb issues aren't regulated to the extent that even OTC equities are. Thus if you're looking at a quotation, there's no rule obligating a particular market maker to take your bid (or offer). Essentially you become the sucker, taking what the big boys are willing to give you.

As to what a broke-ass college student should invest in, I'm guessing that you've probably got maybe a couple of thousand dollars. Honestly, if you have money to spare, your number one choice ought to be to pay down any interest-receiving loans. Interest rates are low right now, but you're still probably paying out a good 4-6% on any outstanding loans for school that aren't funded by the government. If you have credit card debt, definitely pay that first-- those loans can be anywhere from about 7% all the way up to whatever the legally mandated maximum is these days. I've seen some folks walk in the door with a few thousand dollars who are paying 20% interest on ten thousand dollars worth of debt to MasterCard. I don't care who your broker is, if he says he can get you 20% per annum he's lying to you (or an idiot). If you'r'e debt-free, I would want some more specific information. Generally somebody in your age range is going to want to keep his assets as liquid as possible since you never know what (car, rent, beer money) is going to come up. Savings accounts don't pay much but at least you can pull your money out at any time. For a little bit less liquidity and slightly higher returns you can put it in a money market. If this is money you can definitely put away for two years or more and not touch, it might not be a bad idea to put it in a government treasury bill. It won't pay as much as corporate debt, but you won't have to get a broker *and* it will be backed by the U.S. government. You might look into EE Bonds, the minimum investment is just 25 bucks and you can get your money back, plus interest, in just 12 months. If you think inflation is going to rise (which I don't) you can also do the I bond, which is fixed to inflation.

Bob