The Passing Of The Broker's Boardroom
Last August, both the Dow Jones Industrial Average and Standard & Poor's 500 soared almost 5% in a single day. General Motors was up 4 1/4, IBM 3 1/8, American Telephone 2 3/8, Eastman Kodak 5 1/8, and so on down the blue-chip roster. The next day the market gained around 18 DJl points but lost it by afternoon. On the third day, the Dow jumped 16 points, then gave it back, then rebounded. By week's close the Dow had gained over 80 points. Through all this hectic record-shattering, a person not in constant touch with the market, as anyone in ordinary business is apt to have been, existed in blissful ignorance of extraordinary happenings until the evening TV news. No doubt such insulation helps prevent stupid spur-of-the-moment decisions. On the other hand, those who are knowledgeable about a day's events often gain investment advantage.
Now, with computers casting their green glows into offices and homes, no investor need remain in the dark. Many terminals, including some of the simplest, can be hooked into news-dispensing databases through such interactive telecommunication technologies as videotex and teletext. Even an investor with rarefied interests -- say, bonds of the Estonia Republic (recently quoted at $14) -- can, with only a modicum of keyboard dexterity, coax a video display into providing useful and surprisingly current information.
The leading purveyor of such business and financial information is Dow Jones News/Retrieval, a service of Dow Jones & Co. of Princeton, N.J. For comparatively modest fees (there are several price options), Dow Jones can summon current stock and bond prices, option quotes, and various other market statistics; financial and general news items; company profiles, earnings, and business developments; and a wealth of other material, much of it highly refined.
The problem is that the contents of this vast library are sitting at the other end of the wire in a pool of bits and bytes and, unlike information in the morning newspaper, must be actively hunted down. Sometimes this demands rigorous pursuit, but the effort can be more rewarding than waiting for a phone call from a broker who not only has dozens of other customers to look out for, but doesn't share an intense personal concern for the enhancement of one client's portfolio.
When the stock market exploded that afternoon last August, for example, a desk-bound investor could have been informed by monitoring the Dow Jones averages. These are on-line immediately after they are compiled -- about five minutes past the half hour. Seeing the averages start to soar, a market player would have called up stock-news headlines. There he would have noted, among other items, that Salomon Bros.'s influential economist Henry Kaufman, an authoritative commentator, had changed his mind about interest rates. Similarly, news of the prime rate cuts later in the week that further inspired the whopping advance could have been received within minutes of its going out on news tickers. Thus enlightened, the investor might have keyed in his own holdings to find out how they were faring, and, if necessary, taken corrective steps (any short position, for instance, would have had to be covered as soon as possible). This could have been accomplished within a few minutes with far more efficiency than trying to get through to a busy broker.
As handy as the service is, however, it suffers some drawbacks. A major one, as far as market traders are concerned, is the time lag in market quotations. Dow Jones processes a 15-minute-delay variety supplied by the Associated Press. As a result, prices are stale by at least a quarter of an hour, and often much more. The worst area in this respect is the over-the-counter prices taken from NASDAQ, which often run more than an hour behind the floor. Even so, a more or less current sense or the market can be obtained through other maneuvers. One is to punch up stock market summaries. These highlight some of the most dramatic price moves and frequently refer to prices that are only about five minutes old. The investor can then compare the prices with those stocks' older prices as quoted on the delayed basis to see if they have moved up or down in the interval.
Another tactic that might gain market edification over the laggard prices carried in the quotation system -- particularly if the tape is running late -- is to call up the newest list of most active stocks. NYSE and ASE most actives usually are available within five minutes of their release (OTC most actives are not available intraday). These, too, can be compared with prices in the quotation system. The most actives also suggest where the day's market play is. For example, they may be dominated by oil stocks, or high-tech issues. Or the most active stocks may be down on balance with the averages up -- a sign of general weakness that might hint at the imminent end of a rally.
Other parts of the service can turn every investor into a one-person research operation. For example, with News/Retrieval, a public company's latest 10-K car be screened or its address and phone number obtained so you can quiz the president directly. Additional databases contain historic stock prices, latest earnings, analysts' consensus of future earnings, The Wall Street Journal and Barron's articles, "Wall Street Week" television commentary, industry news, Media General market and stock statistics, and an on-line encyclopedia. A dedicated market student can take the AP closing statistics after 6 p.m. when the rates go way down (from 90 cents to 15 cents per minute), and pump the open, close, and volume numbers directly into a microcomputer with graphics capability. The investor could thus essentially keep his or her own up-to-the-minute chart book in a computer file.
Dow Jones now has added a $50-a-month fillip to this body of information: a personalized radio attention-getter called DowAlert, marketed through subsidiary Dow Jones Radio 2. It is broadcast on FM subcarriers in selected markets. Each receiver, says editorial vice-president John Prestbo, is capable of handling up to 10,000 codes. The codes can be for individual companies, "broad tape" selections, government news, industry notes, and similar categories.
If the price of a subscriber's selected stock changes by more than a point, for example, it will be reported. DowAlert's news items -- they are more than headlines, says Prestbo, but are not lengthy stories -- are voice broadcasts lasting an average of 30 seconds (although in last August's hectic trading they stretched closer to 90). The Dow Jones averages are intoned like mantras every half hour. And if the subscriber happens to be away from his desk, the information can be automatically recorded on a built-in cassette for later reference. So far, however, the subscriber cannot interactively call up data, and the definition of what constitutes important information is being expanded by Radio 2. "I haven't yet made the full transition to electronics," admits ex -- Wall Street Journal writer Prestbo.
A company that is in the process of making such a transition, at least as far as keeping abreast of financial information goes, is Dataspeed Inc. of Burlingame, Calif. Dataspeed is about to introduce a radio that works through FM sideband transmission and has a four-line liquid crystal readout. Within a range of about 40 miles, the company promises, a subscriber can address questions to the market much as brokers can with brokerage house interrogation machines such as Quotron. Dataspeed can be asked for the real-time price of stocks, bonds, or options, current bid and ask, the number of issues advancing versus the number declining, and so on. Thus no investor need be more than a millisecond away from controlling his own destiny, even in the midst of a game of tennis.
With the combination of these three marvelous investment tools available to subscribers, the brokerage house boardroom with its comfortable chairs and somnolent chatter of the ticker tape may, alas, soon be as antiquated as the fixed-rate mortgage.
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