The “Stock Market” Does Not Owe You Anything

I know you haven’t yet heard enough yet on the topic, so I thought I’d throw my hat in the ring regarding Michael Lewis’ book “Flash Boys” as I just finished reading it this evening…

Let me preface this post by stating that I neither condone, approve, nor enjoy the type of activity and computing arms race that High Frequency Trading (HFT) has introduced to the marketplace. Also, a big shout out to John Darsie over at T3 Live (@DarsieT3Live) for engaging me in a smart and healthy debate on some of what I discuss below that kickstarted the gears to get me to write this post.

One of the key arguments people cite against the rise of HFT is that the pirate coders behind the software are siphoning off untold billions of dollars from regular people (read: you & me). Their actions are increasing costs for large mutual funds, pension funds, and wherever investors are pooling their money to invest in the Stock Market for their retirements or future income needs. This I do not debate. It is fact and I accept this as fact.

But this has opened up a deeper question for me that perhaps people need to begin asking themselves: Why invest in the stock market at all?

If Wall Street is hellbent on gaming every single order that comes into the marketplace with the sole intent on fucking you – the investor – why even play?

There seems to be this smug assumption that the Stock Market was invented so that “We the People” can invest our excess capital (savings) for the long term and in turn have all our future financial needs met. Where is this rule stated? What law states that this condition must be met?

The Stock Market does not owe you (or me) anything.

The Stock Market was created so that companies (companies, not individual investors) could raise capital to grow their businesses, expand into new markets, liquidate early funders, etc. Investors or Speculators are invited to purchase shares in said companies and are thus entitled to a relative portion of any future gains (via dividends or share appreciation), if any exist. There is no guarantee and there is no refund.

Somewhere down the line around the end of World War II, Wall Street hit on the bright idea (gleaned from its lessons learned while selling War bonds to the American public to raise money for the gov’t to wage war) to sell Americans on this fantastical idea of “retirement.” All of a sudden, we were being sold that it was our god-given right to be wealthy and retire at age 55 (now 65) to a life of morning shuffleboard and 4pm dinners in West Palm Beach Del Boca Vista Phase II Community for the Esteemed. We are entitled, dammit! And the Stock Market will get us there!

All of this is well and good. But you’ve been sold a marketers idea. Sold to you.

Now it seems everyone feels entitled to annual 9% gains in their investment portfolios and are downright shocked – shocked! – that their laziness (yes its lazy to invest in a no-load index fund) is being exploited by fast actors gaming a system that you clearly want no part of (as your indexing actions suggest).

Here are your choices:

1) Battle. You can choose to fight back. You do this by making yourself less of a target, and accepting the little nickel-and-diming that comes with it. Trade Less. Much Less. Use limit orders. Be patient. The fewer times you click the mouse, the less often an aggressive algorithm will pick you off. This still requires work and active management. And it’s not easy. But it’s simple. This obviously isn’t for everyone. If you can’t manage your trades/investments then….

2) Invest in a passive index fund with low turnover. You’re still gonna get nickel-and-dimed. But less so. And quit your bitchin’, once you’ve sent your money you’ve got nothing else to do but wait for the long-run to get here as quickly as possible. Small price to pay to have someone watch your money for you.

But really, the 3rd option is the one that should be getting more attention:

3) DO NOT INVEST OR TRADE IN THE STOCK MARKET. If you don’t like the rules of the game, and the costs (explicit and implicit) to play, don’t play! Nobody is holding a gun to your head. Do you have any debt (mortgage, student loan, credit card, etc)? Pay if off. BAAM – guaranteed return. Invest in yourself: Get a second degree (or first!), start a business, buy a farm, loan money to people on, build an app, start the next snapchat. I dunno… do something. Do anything. Just don’t close your eyes and expect “wall street” to make you rich without taking a little skim off the top.

Just like those beautiful hotel casino resorts in Las Vegas weren’t built by letting gamblers win, Wall street and its huge marketing apparatus isn’t funded by ensuring that you (me) make all the money. Always assume there is a better, smarter, faster player on the other side of your trade. Same as it ever was.


One good thing to come out of all the “Flash Boys” kerfuffle: I now know what to call my all-trader 80’s cover band.

— Sean McLaughlin (@chicagosean) Apr. 13 at 11:32 AM


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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