Bear essentials

Bear essentials: By Tim Cavanaugh. Christopher Byron, the Cassandra of Net stocks, explains how day traders have fueled the tech market roller derby.

By Tim Cavanaugh

Feb 18, 1999 | As the late-'90s surge in Internet stocks has sent time-honored notions of value investing, long-term horizons and the "efficient market" up in smoke, nobody has looked on with more horror and amusement than Christopher Byron.

In his regular columns for MSNBC, the New York Observer and Playboy, Byron is a master of mordancy. His column headlines stand out for their gleeful -- if occasionally monotonous -- vituperation: "A Tale of Two Dicks: How Bernstein, Snyder Wrecked Golden Books," "Internet Hysteria Brings More Fools to Unstable Market," "Wilbur Ross Bought a Turkey and It's Still a Sick Bird."

But Byron's dissections of what he calls "anything with a dot com in the title" have gone beyond both old-fashioned skepticism and "Internet-is-crazy" knee-jerking. Unlike the many commentators who greet skyrocketing stocks with either uncritical cheering or gassy skepticism, Byron presents a coherent view of what is making the market explode -- and how the influx of new day traders has combined with a raft of thinly traded stocks to inflate the tech stock sector.

It's a view to which more analysts are being converted of late, as the market shivers and regulatory agencies show signs they might clamp down on momentum trading. If they do, Byron will be the first to say he told you so.

Salon recently talked to Byron by phone from his Connecticut home.

For some time, you've argued that day trading and momentum trading are responsible for the recent bouts of Internet stock mania. But isn't day trading, in terms of total trading volume, still pretty small potatoes?

They're not small anymore. Not at all. The day trading phenomenon didn't begin on the World Wide Web, and until a few months ago it wasn't principally concentrated on the Web. I'll give you one example. In the months of August and September, one relatively small day trading firm, called Broadway Trading and Consulting, was responsible for roughly 8 to 10 percent of the total monthly volume in Amazon. That's an unbelievable amount of trading. Another day trading firm -- Schoenfeld Securities -- has a total trading volume equal to 5 to 10 percent of the daily volume of the New York Stock Exchange.

You're talking about what started out as these companies with rooms where people would go in and trade?

Exactly. Up until 18 months ago, these traders were chasing other volatile stocks, because their whole thing is to chase volatility. But there hadn't been the kind of momentum available that you have in Internet stocks. When this opportunity in Internet stocks developed, the day traders started coming into this market, and they have tremendous buying power. And if you add up all the volume of these types of operations, and concentrate them all in one relatively small sector of the market, you get these explosive moves that can double or triple a stock's price in an afternoon. There's really nothing more to it than that.

Next Page: What a "small float" is, and why it won't rescue you from market tidal waves

• View blog reactions