To the Average Joe Schmo Investor – Slow and Steady Still Wins the Race!

Posted by on September 27th, 2012

High frequency trading is being demonized for two reasons: 1) because it isn’t well understood by the broader public and goes against the “idea” of a fair market where everyone is on a level playing field; and 2) because there are accusations of unsavory trading practices among some of the high frequency firms. Like anything that isn’t understood and makes a lot of money, outsiders like to jump to the conclusion that there must be corruption.

Overall, I believe high frequency trading is to the current markets what day trading was to the markets 10 to 15 years ago. It has changed the face of the market by bringing in more volume and adjusting stock prices much more quickly. But who’s hurt by this? The only people I can think of are the Day Traders and the people who aren’t very fond of this style of trading. So what is the real issue? Is it that people can’t sit on their E-Trade accounts and jump in and out of stocks all day by clicking a mouse and typing in each trade? Okay, that may be true. However, for the average person, investing shouldn’t be a race jump in or out a couple of seconds faster.  For the average person, jumping in and out of stocks, even before high frequency trading, is a losing strategy over the long term.

The idea that high frequency trading is hurting the “regular investor” is preposterous. High frequency trading isn’t impacting company valuations or messaging to investors or their ability to do business. The Average Joe Schmo investor has the advantage of having a long-term outlook. As such, traditional investors, like the great Warren Buffet, who look for good companies executing on solid business strategies, shouldn’t be affected.  Plus traditional investor benefits from the added volume of high frequency trading, which makes it easier to enter or exit a stock on their terms. As an investor relations professional, I have witnessed more damage being done to a company’s stock by investors gossiping and trying to manipulate other shareholders than I’ve ever seen from high frequency trading.

In the end, while everyone is fighting over the quick buck, the investors making the most money will be those with a long-term outlook on the watch for great companies that offer a value or growth opportunity.  And this is why KCSA counsels its clients to focus their investor communications on long-term goals and growth.