The similarity between the charts of stock market volume in the 1990s and 1920s should un-nerve even the most bullish chatroom audience. According to the NASD, average daily volume will reach 1.1 billion shares by the end of this year. Behind all this trading are a couple of factors typical of financial manias. First, investors are increasing risk in their personal portfolios at exactly the time they should be most wary. For example, the move online, in part, reflects a move away from mutual funds toward individual stocks.
Less diversification equals more risk.
But even flipping Internet stocks doesn't provide enough action for increasing numbers of investors. As a result, more small-time players are plunging into the options market. Meanwhile, rising margin debt is ratcheting up the risk in the system as a whole. Another indicator of market mania is the rush to stocks by new players. The ads are such a great departure from their more sober predecessors that SEC chairman Arthur Levitt has compared them to lottery commercials.