But most importantly, individual investors feel, as Alan Newman of Crosscurrents puts it, “the deck is stacked, the game is rigged against them.” And they feel that way because it is. As Alan laments, “The public has gotten the shaft from Wall Street, from the SEC, from short-oriented hedge funds and now from high-frequency trading.”
The market everyone knew, he says, has disappeared, and in its place is an arena in which the long term not only doesn’t count, it doesn’t exist.
Indeed, we suspect that the metamorphosis from exchange to casino is the root of individual investor disaffection.
Instead we have a market driven by High Frequency Trading algorithms where fundamentals and even technicals mean nothing, with computers trying to make a faction of a penny per share on large split second trades.
They point out that “in an environment where the range and speed of price movements is ever-increasing, fundamental valuations of a company would seem to be increasingly arbitrary without the ability to distinguish accelerated price movement from actual value.”
And since high-frequency traders have become the dominant market makers and shakers, their capacity to turn on a dime and sell off everything, means that a market correction could go much faster and far deeper than the Street imagines.
But they’ve poisoned their own well. The individual trader has left the market and everyone now knows it is gamed and rigged. You could get better odds playing a slot machine.