Wall Street is changing. What used to be a vehicle for investment, it has become a vehicle for opportunistic trading.
A couple of weeks ago on 60 Minutes, there was a segment about computer trading, and how it works. It seems computers are programmed with specific algorithms that track specific price movements and tell the computer to trade with the smallest of price moves. Basically, this is the same as card counting is in Las Vegas.
These computers don’t know if they’re buying computer companies, big equipment, software, retail, or anything. All they know is a small movement in price prompts a trade.
A while ago, the market had to stop trading due to a computer incorrectly selling billions of dollars worth of a specific stock, prompting all of the other computers to make trades based on the new information created by the incorrect trade. In other words, a computer trading avalanche was happening without the involvement of human hands touching any of the trades.
Here is what I would do to stop, or at least modify this form of “investment”. If a small tax, maybe one percent of the value of the trade, is incurred every time a stock is sold, the movement of the price of a stock would have to be greater to have the computer make a trade, reducing the amount of trades, and reducing volatility.
Free trading is not free. It’s time we recognized that.