A day trader, a commodities speculator, and a traditional investor happened to meet each other over a bar, or at least above a restaurant that serves beer and wine. It wasn’t a joke, but we had to laugh. We’re all witnessing the same behavior, realize there’s nothing we can do about it, realize there’s nothing the government is doing about it, and yet we all continue to invest. When your list of choices diminish, it is easier to make the choice, but you’re less likely to like it. Investing has certainly changed.
Whenever I sit down to write this blog I experience a frequent lament. I wish I had more time to research the data, analyze what I’ve found, check with other analyses, revise as necessary, and report the results. That’s what professionals get to do, and I suspect even they don’t get as much time as they’d like. Instead, I spend a bit more time than most checking news reports, perusing charts, checking in on online discussions, and reviewing my choices. My semi-annual portfolio review is the most structured of the exercises, but even that is far removed from the computations I’d enjoy producing. Data can be fun. Geek out!
But, I am not a professional and am only responsible to myself. I post my thoughts publicly via this blog and various discussion boards, but they are my thoughts about my situation. Your situation will be different. And yet, the lack of a difference is what I noticed during a chance meeting of three people that happen to continue to invest regardless of the current climate.
My office is in a coworks, a place where a mixed group share a space but rent desks. Interruptions are normal, and that includes visitors dropping by to check out the space. If you’ve been reading this blog you know I buy stocks in small companies, hold them for years, and then hope to sell them after they’ve grown. It is an old strategy sometimes called Long Term Buy and Hold (LTBH). One visitor sat down and started asking me questions about the space, and the topic of bandwidth and internet access led to the topic of high frequency trading. Another visitor happened by, recognized me from one of my talks, and mentioned that he was a commodities speculator as well. All of us were investing. All of us were interested in economical office space for jobs that had nothing to do with investing. Our investing was encouraging enough to occupy some of our time, but not profitable enough to negate the need for regular income.
We were all also about the same age. We had all experienced an earlier era in investing that was more rational, more regulated, and more enticing. We all recognized that we are in a new era.
Investing has never been completely free of inequities. There have always been people with unfair advantages. As civilization has matured, there has been a trend to minimize the disparities; and yet, within the last decade or so, the regulations and regulators aren’t keeping up with imbalances and improprieties. It seems that the inequities are increasing.
Here’s where I’d like to pull up the data, reference specific events, analyze money flows, and contemplate core trends. In the meantime, through that conversation and others, it seems that the imbalances and improprieties are outside the control of individual non-accredited investors.
High-frequency trading is happening at such a technical level that large financial institutions are moving their trading computers as close as possible to the market’s trading computers because the time it takes electrons and photons to move a few extra feet is a disadvantage. Seattle is much more than a few extra feet from Wall Street.
Market manipulation hasn’t been proven, and may be unprovable except by a whistleblower, but flash crashes are effectively approved because the trades aren’t negated. There are regulations and mechanisms in place to manage such irregularities, but none of us had seen them exercised. Small investors get dropped out of stocks, and large investors step in to take up their positions at a bargain.
Wealth accumulation means larger portfolios are larger, that there is less for the smaller portfolios, and that the big money is chasing the big investments while ignoring the small investments. The demand for large cap companies increase because they are large cap companies, and small cap companies are more likely to remain small because there isn’t as much money left to invest outside the large portfolios. Unfortunately, small companies are where innovation happens; so subsequently innovation isn’t encouraged.
We’re all seen the activities, and yet we invest because we must. When there are fewer games in town, and games are the only way to “win”, then you have to play to games that are available.
Many investors no longer invest: 43% of Americans are only invested in cash, which is another way of saying they have a checking account and nothing else; and 53% of Americans have returned to the Great Depression habit of hiding cash somewhere around the house because they don’t trust the banks.
I wish I had the time to draw together the amount of involved in high frequency trading and the trend with time; the number, severity, frequency, and consequences of flash crashes; the numbers of small cap versus large cap investing capital; and the total wealth accumulating in cash in working class households. But, I don’t have the time to do more than draw my own conclusions.
My conclusion is that I will continue to invest because of another trend I’ve witnessed (and for which I’ve seen data that I can’t find quickly enough), and that is the fact that working harder no longer is effective for financial mobility. Wages are stagnant. Living expenses are increasing, regardless of the official inflation numbers or the temporary blip in gas prices. I continue to work seven days a week because that’s the way I pay the bills, or at least most of them. I even have hope that improvements will come my way – but I’ve held those hopes for years. My stocks are a hope. I’m invested in disruptive companies, which hopefully make enough money for the stock to attract the large investors, while also positively impacting the planet. That isn’t the refined, sedate, conservative investing strategy from years ago, but that was a different era. Or, at least that’s the way it looks to a trader, a speculator, and an investor who all have seen the old era, and the new – and who are all sitting at the same bar and continuing to invest and work.