“The stock market is rigged!” Jeff Macke writes for Yahoo Finance. “That’s the headline as suggested by author Michael Lewis during a segment on last night’s 60 Minutes. Promoting his book, Flash Boys: A Wall Street Revolt, Lewis argued that High Frequency Traders (HFTs) are in effect stealing from individual investors, pension funds and literally anyone else who ever buys or sells a stock.
“The HFTs using high speed computer algorithms, fiber wire and other terrifying stuff to pervert the otherwise level playing field on Wall Street,” Macke writes. “How do they do it? In effect they front-run traders; buying the shares you order faster than you can, then sell them back to you for a profit… The trading desks of four different major financial institutions posted gains every single day during the first quarter of 2010. The tradings desks of JP Morgan, Bank of America, Citigroup and Goldman Sachs combined posted 244 winning trading days against zero losses. Were the playing field truly level the odds of a firm making profits or losses on any given day would be roughly 50%. The chances of going 61-0 on such a trading field of dreams would be 2.31 quintillion to 1.”
“Main Street investors will never be able to move faster than the computers so they shouldn’t try,” Macke writes. “The way to beat the HFT crowd is by setting a price you are willing to buy or sell a stock in advance. It’s called a Limit Order and it’s available at no charge from any on or off-line brokerage service.”
Read more in the full article here.
One word. FOREX.
that’s three words
so is that
3 words and 4 x’s
These comments are rigged.
The market is rigged! Wow, I never would have guessed! (sarcasm)
This is news to ANYONE? ?
A limit order is an intelligent way to purchase shares of stock. If you Google a bit, you’ll find many articles and sources supporting this, instead of buying stocks with a market order.
I also recommend reading The Outsiders by William Thorndike, and The Warren Buffett Way, by Robert Hagstrom. In many ways, Buffett is a good model for individual investors. Despite all the chicanery and high-speed maneuvers of Wall Street, Buffett has persistently followed a method that the little guy can emulate:
1. Carefully researching and finding excellent companies with outstanding management,
2. Patiently waiting for their shares to be available at the right price, buying in larger quantities, and
3. Holding on to them for many years.
4. If the company’s stock pays a dividend, REINVEST THE DIVIDENDS. That is really important. Let the power of compounding multiply the number of shares you will own over a number of years.
5. Rinse and repeat.
6. Cover your ears and ignore the Wall Street hype and hysteria, especially CNBC. All the gloom and doom is meant to get you to buy high and sell low, and to trade frequently. That’s a loser’s game.
7. When the stock market dives, and it will at some point, DO NOT PANIC. If the company whose stock shares you own is profiting and generating cash, and their cash pile is growing, patiently hold on. Use market drops to buy into great companies at a discount. That’s how the big boys make their money.
That may sound simple. And it is. Wall Street owns the expensive watches. But you have the time. Time and patience are the key tools that the main street investor can use to build a secure financial future. In the short term, the market might be rigged. But in the long term, played out over a number of years, the small investor can more than level the playing field.
You have to be willing to ride out inevitable market cycles (the ups and downs), cover your ears to shield against the noise, lies and hysteria of the Wall Street pundits and media. So long as you invest in companies whose earnings and cash growth increase, companies that manage debt well, you will succeed in the long term. Remember that the big Wall Street firms think moment to moment, quarter to quarter. The individual investor can afford to focus on holding stocks for many years, something most large Wall Street fund managers cannot do. The longer you hold a stock, the less volatile it becomes. Remember that.
This is why I am a patient Apple investor. The company continues to grow, and most important, grow its cash. Apple pays a growing dividend. In the long run, this will make its investors a lot of money. If the company comes up with another hit in the next few years, all the better. Just remember that most companies have only a few hits in a fifty year period. Pharma companies might have one blockbuster drug in a decade. Movie studios might have a big hit only every several years. Car manufacturers can only hope for a big selling car once in a decade.
That is why I cover all the noise about Apple. It has many smart employees, and eventually will have another big product or service. I’m willing to wait for that, and in the mean time, let my dividend reinvestments grow. Twenty years from now, I am confident that I will be smiling for ignoring all the punditry and noise. With any company, the small investor would be smart to do the same.
Patience as practiced by Warren Buffett is the key to beating the Street. I don’t care that the market is rigged. In the short term that’s true. In the long term, if you are smart and patient, you will win, stock rigging or not.
Read the books I mentioned above. They are well worth your time.
We have regulatory agencies that aren’t doing their jobs because they’re appointed by corrupt politicians. We need to take money out of the elections and replace all sitting politicians with people who will take us out of all wars including the war on drugs, prosecute the CEO behind the 2008 financial crisis and the rigged investment markets and take back that money, protect the sanitation of our food and water, and stop the NSA and bring back our bill of rights, and for extra credit remove legalese from all laws.
Amazing. The brokerages are stealing Billions, and all the talk is about how to get around it. How about charging these companies with felonies and throwing them in prison?
Wall Streets claim will be the same as it was in 2008, “We didn’t do anything illegal, now cover our losses and go away.”
The better way to control this nonsense it a tax on the gains from every trade, no offset for losses and at a rate inversely proportional to the length of time the shares were held. Say 90% for positions held less than an hour, 50% on gains from trades held less than a day. Down to 0.1% for long term investors. Should have a damping effect. Stock trading is a zero sum game. Every penny the Banksters make comes from someone else. If you can’t stop them, at least tax them.
Better yet, eliminate the monopoly money that is stocks altogether. It’s like the lottery in that you only win if you don’t play (most of the time).
Uh, I think that was tried already. It was called Communism and we all know how that turned out.
Um… “otherwise level playing field on Wall Street”? What planet is this guy living on? There are plenty of ways to level the playing field, like storing several minutes worth of transactions and then processing them in random order instead of chronological order, but the big investors won’t allow such reforms because they like competing only when the playing field is tilted in their favor.