In his new book, Michael Lewis argues high-frequency trading by professionals has made it impossible for mum-and-pop investors to get a fair shake in the stock market.
On CNBC this morning, Business Insider Editor-in-chief Henry Blodget disputed that assertion.
Blodget said there’d never been a level playing field in investing, and that in fact it’s much less rigged now.
“I think the big issue is we always try to talk about this level playing field,” he said “‘It should be just as easy for everybody at home.’ It never will be. And the reason it never will be is that it’s incredibly difficult. And folks with 20 years of experience, MBAs, huge research departments spending $US50 million a year talking to executives, everything else… They can do it. So the idea that you can do it at home just because it’s safe and fair, that’s the delusion that people have to get past.”
Full transcript below.
Henry Blodget: “I think the concept of the stock market being rigged is crazy. It is much less rigged now. If this is rigging, than it always used to be — where your broker was getting a big commission on the share, it’s now a much smaller commission. It’s just not a commission. Somebody’s getting in the way and taking it.
The big problem, Carl, is that people who are trading casually, once in a while, often have no appreciation for how difficult it is to compete against professional investors who have extraordinary resources, experience, information at their fingertips. Folks have to lose in the stock market for others to win. And you’re effectively walking on the field and trying to compete with the New York Yankees.
That is the problem and that is never talked about in this discussion.
Carl Quintanilla: Are you saying this is a problem but it effects a limited pool of players and mum and pops should not worry?
HB: This affects everybody. In fact a big hedge fund trading billions of dollars a year going to lose a lot more money than somebody trading a hundred shares here and there. But I think the big issue is we always try to talk about this level playing field ‘Should be just as easy for everybody at home.’ It never will be. And the reason it never will be is that it’s incredibly difficult. And folks with 20 years of experience, MBA, huge research departments spending $US50 million year talking to executives, everything else, they can’t do it. So the idea that you can do it at home just because it’s safe and fair, that’s the delusion that people have to get past.
CQ: Doesn’t sound like you think the exchanges will have a change of heart or banks or regulators for that matter — that this is going to be with us forever.
HB: I think we should look at this and merit’s a good regulatory investigation is it harmful, the argument is it creates more liquidity, which can be helpful. It’s the same thing that floor traders used to do, the specialists creating liquidity. There was an argument that was a positive force. We should look at that and evaluate it. But I don’t think in a pure financial sense individuals are losing that much.