So, Alvarez has seen much professional success and the financial rewards that come with it. He’s noticed that the process of investing his money is a lot different than it used to be.
“I started thinking about how much has changed when it comes to retiring,” said Alvarez. “For example, I was recently meeting with my own financial planner for our annual strategy session, and we were sitting there staring at his monitor reviewing my investments. I remember that just a few years ago, I would have had to go to the library to review the performance of my stocks and investments, or I would have had to read a financial newsletter or something.”
“Then, when I was ready to put my money to work, I had to go to a licensed stockbroker and tell him what my research uncovered and what trades I wanted to make, give him a check, wait a couple days to get confirmation that my trade was done, and then repeat that process all over again when I wanted to sell that investment!”
It’s true: just a short while ago trading stocks was indeed a process that took days. Now, financial institutions are arguing over how some firms have an unfair advantage because they can trade a fraction of a second faster. How and when did this change occur?
“It all changed in 1991 when a little company named E-Trade created a whole new paradigm, allowing customers to use this thing called the internet to trade stocks on their own, and all of a sudden the concept of day trading was born.”
“I remember a number of my friends who quit their jobs to stay home all day and get rich trading stocks from their computers, and remember in those days, they were depending on a 56k modem [laughs]. You know, considering today’s broadband standards, it’s like a pony express the way we did it.”
“Many day traders saw their fortunes get wiped out in the dot com crash of 2000. Until that time, day trading was a fast way to capitalize on short trading windows by moving much more quickly than the mainstream market. But the dot com crash didn’t stop online trading. In fact, technology has affected the way the stock market works at every level.”
There is one developing piece of investment tech that is particularly interesting: virtual reality.
“In addition to the fact that E-Trade changed the way we make stock trades, one of the early pioneers instrumental in creating a wide spectrum of mutual funds was a company called Fidelity Investments,” Alvarez continued. “They’ve been around since after the Second World War, and now they manage over two trillion dollars in assets for over twenty million investors around the world.”
“The reason I bring up Fidelity is that their research and development arm recently announced the creation of a new virtual reality environment which is supposed to make managing your investments look like a video game.”
It may seem like a goofy idea, but Fidelity has come up with what could be a clever solution to a prevalent problem. That problem: the average person can’t make heads or tails of the all the stats and spreadsheets that stockbrokers and financial advisors use to measure the performance of a given stock.
So what does this virtual environment look like, and how does it help those who don’t speak stockbroker? Well, it represents your stock portfolio with a neighborhood that you walk around in. Each house is an individual stock. There are a number of visual cues that indicate how well each house/stock is doing, for example, stocks performing well are growing and have green roofs, and stocks performing poorly are shrinking and have red roofs.
“The actions you take are reflected by positive and negative changes in a variety of ways,” Alvarez explained. “For example, you see birds flying overhead and flocking over a particular building, this would represent the rise in popularity of a particular investment. The user can reach out and touch that building with a virtual hand and access information to that stock or bond.”
If you think this a great idea, Alvarez warns you not to get too excited. “Unfortunately, at this point the virtual reality is more a gimmick than a solution,” he said. So maybe this virtual environment for investment is one of those of those great ideas that just won’t stick. But even if it doesn’t work out, the silver lining here is that investment firms really are trying to make investing easier to understand for the rest of us.