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Online Brokers will spend more than a billion dollars on ADs



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The Unintended Consequence of Online Brokers'
                    Advertising: Michael Lewis
                    By Michael Lewis


                    (Michael Lewis, the author of ``Liar's Poker'' and
``The New
                    New Thing,'' a forthcoming book about Silicon Valley, is a
                    columnist for Bloomberg News. His opinions don't
necessarily
                    represent those of Bloomberg News.) 

                    New York, Sept. 22 (Bloomberg) -- Online stock brokers are
                    boosting their ad budgets by 60 percent over the next
year, to
                    more than a billion dollars, according to Lehman Brothers
                    Holdings Inc. 

                    You may have thought that you could not see more television
                    commercials than you already do featuring freaks posing as
                    ordinary Americans who have got rich playing the market
in their
                    spare time. You thought wrong. 

                    Charles Schwab Corp., E*Trade Group Inc., and Ameritrade
                    Holding Corp., et al., will spend more money trying to
persuade
                    U.S. investors to fire their stockbrokers than Burger
King and
                    McDonald's will invest in their campaigns to sell
hamburgers. 

                    The Internet brokers probably believe they are selling only
                    their new services. In fact, they may be helping to
sell the
                    American investor on a radical idea: that investment
advice isn't
                    worth paying for. 

                    Twenty-six years ago, when Burton Malkiel published ``A
                    Random Walk Down Wall Street,'' he also popularized the
theory
                    that the stock market was a game of pure chance rather
than one
                    of skill -- more like roulette than archery. Malkiel
argued that
                    the market was perfectly efficient -- that it always
incorporated
                    all known information. 

                    A Coin Toss
                    ``Random Walk'' theory implied that even the most fantastic
                    market triumphs -- say, outperforming the Dow Jones
Industrial
                    Average for 30 years straight -- was no more miraculous
than
                    winning 30 consecutive coin flipping contests, in which the
                    object of the game is to flip heads and not tails. 

                    Even Malkiel has since conceded that the markets are
                    probably not perfectly efficient. But you don't have to
believe
                    that the market is perfectly efficient to believe that most
                    investment advice is not worth paying for. You just have to
                    believe that it is almost perfectly efficient. There
may be room
                    in the stock market for financial expertise, but that
room is
                    very small. 

                    The evidence on this point is so compelling that it should
                    have put a lot of brokers and money managers out of
business.
                    Investors would have long ago wired even more of their
money into
                    index funds. 

                    Instead, there has been a long and mostly tedious debate
                    about market efficiency. Professors in finance departments
                    continue to argue that the market is mostly a game of
chance.
                    Market pros continue to insist that it is mostly a game
of skill.
                    The profs appeal to the head, the pros to the gut; and
when the
                    money culture is feeling good about itself the gut
often wins. 

                    Wishful Thinking 

                    No matter how many studies you produce that show you'd be
                    better off throwing darts at the Wall Street Journal
than putting
                    your money in a managed mutual fund, or following the
advice of a
                    stockbroker, people will want to believe there is
someone out
                    there who can turn a little money into a lot. 

                    Only now something has changed. Investors are being
                    bombarded with a different sort of propaganda than the
usual Wall
                    Street fare. For the first time, there are powerful
financial
                    companies that stand to make a lot of money by
questioning the
                    value of investment advice. 

                    Of course the online brokers are no more fond of efficient
                    markets theory than the old fashioned stockbrokers.
Their ads
                    make fun of investment advisers (``If your stock broker
is so
                    smart, why is he still working?'') but they stop short
of asking
                    the obvious, next question: Why should online investors
hope to
                    do any better? 

                    Internet brokers disabuse investors of one stupid idea --
                    that their stockbroker is going to make them rich --
and replaces
                    it with an even stupider one --that they can make
themselves
                    rich. In this great bull market, a lot of people are
probably
                    trading for their own account even more foolishly than the
                    average stockbroker would advise them to do. 

                    A Public Service 

                    Still, so far as I know, this is the first time people
                    inside the market have challenged established
interests. And
                    their challenge, because it contains so much truth,
really is
                    seditious. The billion dollar ad campaigns lay a
foundation for a
                    more intelligent public understanding of the way
markets work. 

                    The current passion for do-it-yourself investing will
                    obviously hold up as long as the bull market persists. The
                    interesting moment comes when the market falls, and the
millions
                    of people who came to believe in their own financial
genius are
                    left high and dry. Will they return to their brokers
and say ``I
                    was wrong, I really did need your advice?'' Or will
they call the
                    nearest index fund? My own guess is that Burton Malkiel
will have
                    his day. 




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