As Michael Lewis promoted his book “Flash Boys” on “60 Minutes,” he called for a major overhaul to our trading exchanges. His aim is to combat what he believes is a “rigged” U.S. stock market, brought to us by high frequency traders.
If there’s one thing we opinionated Americans share, it’s a loathing of an unfair system. So it’s no wonder that Lewis’ call to arms handily drowned out quieter reports of the fact that mid-March marked the five-year anniversary of a bull run in the U.S. market that began in 2009.
To the extent that Lewis is generating renewed scrutiny of market costs and efficiencies in a fair market, the conversation is worthwhile. We have been as vehement as Lewis about minimizing hidden trading costs and conflicts of interest such as those found within traders’ black-box relationships. Our emphasis on promoting a level playing field is one of many reasons we turn to alliances such as Dimensional Fund Advisors and other fund managers who demonstrate a transparent track record for managing underlying trading costs.
Is the U.S. stock market a model of perfection, with all high-frequency traders lily white? Clearly not. At the same time, there is considerable evidence that the market is continuing to handsomely reward those who adopt a patient, evidence-based approach to participating in it.
There also is compelling evidence that high-frequency trading has dramatically reduced rather than increased overall trade costs, ironically because of the cut-throat competition it generates compared to traditional tactics. Felix Salmon’s March 31 Reuters’ commentary is one of a number of op-eds addressing this point. Other solid references include Jared Kizer’s April 2 Multifactor World blog post and Cliff Asness’s April 1 Wall Street Journal piece.
Put in proper context, Michael Lewis’ work is an interesting perspective on the inner workings of a messy market. It may also contribute to renewed steps toward the ideal of a market where all players receive a fair shake. But achieving perfect trading technique is nowhere near the greatest factor that will contribute to or detract from your own success as an investor. What still matters by a landslide is how you manage these and other market risks – confidently maintaining your low-cost, globally diversified portfolio according to your personal goals.
On that front, we remain as firmly by your side as ever. As we have all along, we will continue to aggressively champion your highest financial interests in our role as your fiduciary advisor, serving as a buffer between you and a universe of traders who have, yet again, made it clear that your financial success is of no concern to them. Not like it is to us.