Is the Market Rigged?

Stop the presses-this is the week I usually do a Q1 performance review of the major indexes. Instead, I am focusing on the bombshell taking investors/traders by storm–high frequency trading.

Last Sunday, Sixty Minutes ran a feature with best–selling author Michael Lewis where he explains his new book “Flash Boys”. In the feature, Lewis states, “The stock market is rigged and even the richest, most sophisticated investors are getting “s#$%^&d” every day”. You can fill in the blanks.

First, Michael Lewis is a best-selling author so this is not his first rodeo. Lewis had the courage to show investors what went on “behind the curtain”, so to speak with “The Big Short” and “Liar’s Poker”. He shed light within major league baseball with the very popular book, “Moneyball”-a personal favorite. Michael Lewis is no rookie, to say the least.

So what’s the fuss? The 60 Minute broadcast focused on three Wall Street professionals who discovered how the market is rigged (their words) by high-frequency traders. These professionals say to use their exchange. How convenient. The book is provoking governmental reaction. The Securities and Exchange Commission stated, “It is in an “ongoing review of the situation focusing on high-frequency trading”.

New York State’s Attorney General, Eric Schneiderman, stated “There are some things here that may be illegal or should be illegal or that the markets have to be changed. So part of what we’re doing here in addition to looking for illegality is shining a light on the area”.

Do I think the stock market is rigged? I do see those with the largest portfolios have definite advantages. I plan to write on some of these later. I do not think ordinary investors will be affected by high frequency traders with the exception of another flash crash, like what happened a few years ago. If you are an active trader then it may cost you a few cents a year.

High frequency trading is not new or illegal. The Wall Street powers lobbied Congress and REG NMS-Regulation National Marketing System became legal in 2007. Its aim was to foster both “competition among individual markets and competition among individual orders”, per Wikipedia. There are good and bad points to the regulation. We are learning some of the points that are challenging to investors and traders. It will be interesting to see if this regulation is changed in the years ahead.

If you are a follower of my investing strategies, you have invested in high paying ETFs and Closed End Funds. Your high yielding dividends are reinvested with a goal of share building. You took the time to learn the benefits of share building over price appreciation. When the market dips, your high paying dividend funds will buy more shares exponentially since the price of the security is lower. If you have embraced this strategy then you could care less about this book and high frequency trading.

The bottom line-I think Michael Lewis is a marketing genius and his blunt assertion of the market being rigged is designed to sell books and capture press like what is happening here. I hope investors are not panicked when they take the time to discover the facts. Like always, calm heads prevail.

Plan your work, work your plan and learn to share your harvest.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *