Securities industry urged to recognize danger signs of compulsive gambling

David Strow

Tuesday, Nov. 9, 1999 | 11:07 a.m.

A story like Christopher Anderson's has an all-too-familiar ring to it in Las Vegas.

In 1983 Anderson placed his first wager, and parlayed $100 into $200 in a matter of days. His next several attempts met with similar success. The first time he lost, he quickly made back his losses through successful bets.

"I did it once, I thought I could do it again," Anderson said. "It was the easiest $200 I ever made in my life."

Two and a half years later, Anderson was bankrupt. He was more than $100,000 in debt, and his marriage was shattered. Still, while thinking how to get back on his feet, he considered scraping together $2,000 to make another run at repaying his debt.

But Anderson's game wasn't blackjack, craps or the slots. Anderson was an options trader in Austin, Texas -- and his casino was the Chicago Board of Exchange.

"I never gambled on anything in my life," Anderson said. "I could not imagine taking money out of my pocket ... and risking it based on the turn of a card.

"I was simply doing what my profession was about."

Anderson, a recovering compulsive gambler, now works as a therapist in the Chicago area, treating other compulsive gamblers.

He's by no means a fan of casinos -- while executive director of the Illinois Council on Problem and Compulsive Gambling, he angered Illinois casinos with public criticism so much that they cut off funds to the organization. Even today, he still criticizes the gaming industry for failing to take measures to cut off compulsive gamblers.

"Until someone in a casino refuses admission to someone who is a pathological gambler, nothing has changed," Anderson said.

But short-term, speculative investing, Anderson told members of the Society of American Business Editors and Writers, can be a "more toxic" form of gambling than any casino game on the Strip.

Yet in its current form of day trading, it is embraced by many in the financial community. The vision of huge profits propels many day traders to continue trading, even if they're absorbing huge losses, Anderson said.

"In the markets, if I'm short, my risk is infinite," Anderson said. "You can lose infinitely greater than what you have at risk.

"We simply change the name of what we do, and by doing so, we change the perception. I could make the argument that my friends on the floor of the exchange are professional gamblers. They know when to hold 'em, they know when to fold 'em."

Anderson then flipped in a tape of a recent episode of CBS's "48 Hours" news show. The story was about a 27-year-old New Yorker who made his living through day trading.

The young investor claimed he made money about 80 percent of the time, and that skill, not luck, determined his success. But in front of his monitor, he resembled nothing more than a Las Vegas visitor playing at the craps table -- urging on the numbers, cursing and burying his face in his hands when the numbers swung awry. Nearby, a day trader leapt out of his seat with a cry of joy when a stock price ticked upwards.

"It's as if he's mainlining on speed," Anderson said. "He's an adrenalin junkie."

Despite his statements denouncing luck, the investor blamed his losses on unlucky events out of his control. He happily discussed profits from individual trades, but avoided talking about his long-term returns, not even revealing them to his parents.

Many day traders never do make a profit. A recent study estimated 70 percent of day traders lose money, and only 12 percent actually have the potential to turn a profit.

What separates dangerous trading from beneficial trading, Anderson said, is a function of time. Trading into and out of short-term swings, he said, is a gamble. Investing long term is not.

"The shorter the term we get in our time horizon, the more time becomes our enemy," Anderson said. "Historically, time is our friend in the market.

"Advances in technology mean .. the addictive potential increases. The purer we get the substance, the greater the addictive quality. The stimulus response time shortens and the stimulus increases. Before, you had to call your broker. We weren't getting bombarded with information. That (time) gap has closed."

To bring the problem under control, Anderson said the securities industry will have to admit that compulsive gambling is a significant problem among many investors. Then education efforts will have to be launched among regulators, industry officials and the general public.

A more aggressive recommendation Anderson made would be to require investors to sign documents warning about the dangers of compulsive gambling, as they are required to sign risk disclosure documents now. He also suggested that the industry provide training so that gambling addicts can be identified and directed to help.

"I think we're a long way from that," Anderson admitted. "If we do that, we have to acknowledge the problem exists (in the securities industry)."