If you're investing over anything approaching the short term then it is exactly like playing at Vegas, except the card counters aren't banned.
If you invest, i.e. over 10+ years then HFT doesn't matter other than giving you better liquidity and lower spreads. There is much, much less competition in that space, no computer trading and you are capable of actually doing research.
Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable.
Individual investors tend to outperform the market with a 20 day holding period, with "stocks experience statistically significant excess returns of 0.80% in the 20 days following a week of intense buying by individuals, and −0.33% following a week of intense individual selling" [1]. The individual excess returns are attributable to the "contrarian tendency of individuals leads them to act as liquidity providers to institutions that require immediacy," as evidenced by "the magnitude of the excess returns" being "greater in less liquid stocks."
Shorter than 20 days and individuals compete unfavourably with professional traders' infrastructure. Longer and they compete unfavourably with the skill of professional asset managers.
The number of professional asset managers who actually invest for periods exceeding a year is surprisingly tiny. The number of firms (especially American) that wouldn't fire someone who didn't consistently meet/beat expectations each quarter is low.
I work for a proper long term investing asset manager and we are very happy with the lack of competition in our space.
Short term "investors" are really speculating, which is fine, but call it what it is. There's also nothing wrong with using professional managers to look after your money as well, picking individual stocks takes time and paying someone else to do that is perfectly sensible. Just pick someone who genuinely invests for the time period you want to invest with them for.
>If you invest, i.e. over 10+ years then HFT doesn't matter //
Is there any proof of this. How long have we had this sort of HFT?
Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value. Yes, liquidity, yadda-yadda but surely market liquidity is no greater now but HFT is far more effectively removing money (a proxy for the value extracted).
In other words other people are creating value and HFT is a sink for it. The bar to entry to the HFT camp means there should be an overall movement of capital towards the most wealthy in this sort of system.
HFT extracts the value from transactions. It won't extract the value from a company becoming twice as valuable.
Invest because you think the company is going to be successful and thus more valuable. The actual amount of stock that is HFT traded is tiny relative for each company, long term price is driven by what institutional investors are willing to pay for actual percentages of a company.
Why are the other people creating value, while HFT traders do not? Both types of players extract value from the market, while improving market efficiency.
HFT definitely has high entry costs (10's of millions of dollars), and firms that aren't serious about HFT can't participate. Note that HFT only makes 2 billion a year, so they aren't actually missing out on that much. HFT just isn't a very big space, compared to long term investing, and doesn't represent very much movement of capital. (The wealthy don't really invest in HFT, since HFT firms generally don't accept outside capital, or need any substantial amount of capital to operate)
>Strikes me that HFT is extracting value from the market. The prices are usually relatively stable they're increasing the draw of money away from smaller traders but also removing value overall (in the form of money) from the system and not adding much value.
I'm fine with and agree with that, but my fear is that the transition of the exchanges to public companies (which in turn drove the embracing of HFT) and proliferation of HFT is skewing the market one way or the other.
When you have an environment when 45% of the trading activity for a heavily traded stock is obscured for many years, I don't have the ability as a layman to figure out what that means to me and the pricing of the equity.
Many folks would respond "than you shouldn't be investing in individual stocks", but still, if I'm investing in large-cap ETFs, I own plenty of Apple shares as well as other companies that may be affected by this information asymmetry.
When you have an environment when 45% of the trading activity for a heavily traded stock is obscured for many years
I'm not sure what you mean by "trading activity," but this article says 45% of the trades, _not_ 45% of the volume. We don't know what fraction of volume because the author doesn't bother to tell us. That's why the article is crap. It makes a bunch of extremely contentious claims and doesn't answer any of the important questions.
Many people are in company mandated 401ks (full of conflicts of interest between the trustee and the trustee's own funds) that don't have the option to buy and hold a single stock for 10 years.
If you invest, i.e. over 10+ years then HFT doesn't matter other than giving you better liquidity and lower spreads. There is much, much less competition in that space, no computer trading and you are capable of actually doing research.
Investing and watching daily stock moves is a sure fire way of losing your hair and becoming miserable.