Updated Friday, October 31, 2014 as of 5:52 AM ET

Is Wall Street Dangerously Adrift?

Author Michael Lewis’ skepticism of all things Wall Street has made him millions in royalties over the years and brought him hundreds of thousands of readers and fans. And yet his recent claim — in his latest book, Flash Boys, and in a now-infamous 60 Minutes interview a couple of months ago — that the U.S. stock market is “rigged” is both very wrong and very right.

Get access to this article and thousands more...

All Bank Investment Consultant articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.

Already Registered?

Comments (4)
Hi Bob,
My name is Mike Chindamo. I am the co-founder of Fautores Family Offices.
Great article and topic. I agree with your commentary. My take is the following: If there is genuine concern by the regulators to re-create a fair and orderly consumer oriented market then they need to do the following:
Get back to basics. This means start enforcing the laws that currently exist. Penalties should be very severe. Close the firms and lifetime suspensions for all violaters.
Advisors need to follow strict fiduciary principles and procedures, not just suitability.
Currently there is a perception fed by the media that those with the most Assets Under Management are the best planners and infer that your best planning engagement result comes as a result of doing business with the largest AUM vendor. Secondly, a fee-only advisor that has the most AUM is even better. All of these statements are suffering from severe cognitive bias.
There is no correlation to best outcomes by any of the metrics I described.

Next - dynamic asset allocation models invested in passive environments leads one to believe that an investor has minimized risks and costs associated with "gambling" in the stock market. Possibly and in my opinion, investors would be better off doing their homework and having a really good advisor create a comprehensive financial plan. That plan may portray that the investor really has no business investing in the stock market what-so-ever.

My thirty + years in this business have taught me that none of my wealthiest clients have built their wealth investing in the stock market. Their wealth came from ownership of businesses, real estate, inheritance and other equity positions. Those that have made much money in stocks were invested in individual stocks, not funds, ETF's, indexes and other passive styles.

The mass affluent have been sold a bill of goods created by "Madison Ave" geniuses. What better way to gain mass participation than to homogenize the look of stock market investing by portraying how risks are minimized by adhering to minimal risk procedures and styles. Fact is there are no bumper cars if you really want to accumulate wealth in the stock market. An investment in real companies takes lot's of homework and input by a well studied advisor.

I would argue that the trading gimmicks, industry studies that advocate index and passive investing etc will always attract those that seek "a safer bet". For those individuals, I would say they would be better off buying the house next door, cashing it out and renting it. Their return would probably exceed what they can earn in a stock market environment with a built in inflation hedge.

The real wealth in the stock market comes from those companies that are value plays and held for long periods of time. That's what the real pros do. Any one remember the name Warren Buffet?
Posted by Michael C | Wednesday, May 28 2014 at 9:43AM ET
I'm sorry but I stopped reading after you said hft algos are owned by investment banking firms... inaccurate as they use dark pools. Most hft algos or systems are owned by, wait, we don't really know who. Sure we know the big players but not all of them and they make 100's of billions a year and that is a tax on all of us and they add no value. Considering most invest through mutual funds and don't buy stocks this is a problem but you say I'm backwards on that in the article. You also made a claim that there are exchanges that don't allow hft, wrong, they all allow it but there is one exchange that merely slows down all trades making it impossible for hft to scalp you. This article shouldn't exist because the author has a lot wrong. Sorry.
Posted by scott d | Wednesday, May 28 2014 at 10:30AM ET
I'm sorry but I stopped reading after you said hft algos are owned by investment banking firms... inaccurate as they use dark pools. Most hft algos or systems are owned by, wait, we don't really know who. Sure we know the big players but not all of them and they make 100's of billions a year and that is a tax on all of us and they add no value. Considering most invest through mutual funds and don't buy stocks this is a problem but you say I'm backwards on that in the article. You also made a claim that there are exchanges that don't allow hft, wrong, they all allow it but there is one exchange that merely slows down all trades making it impossible for hft to scalp you. This article shouldn't exist because the author has a lot wrong. Sorry.
Posted by scott d | Wednesday, May 28 2014 at 10:30AM ET
Mike Chindamo, my name is Tracy Ann Miller and I own Portfolio Wealth Advisors. Our firm is designed to help people who have ended up with capital through owning a business, real estate or inheritance and do not want to lose it. They also do NOT want to invest in the house next door to rent out. They need to preserve and grow their capital either for the next generation or for their own income needs in retirement. I would argue that seeking a "safer bet" as you call it through active dynamic asset allocation in index funds is the only way for these individuals to enjoy life, sleep well and avoid long term capital erosion through inflation and taxes. There are many advisors in the business of helping clients preserve and grow their wealth over time and hopefully these advisors (like us) are spreading the message that preservation is different than building wealth through market investing. We buy value plays and hold them for long periods of time for those clients who can afford to do so both financially and psychologically. The reality is, that is not everyone.
Posted by Tracy M | Thursday, May 29 2014 at 1:09PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.

Already a subscriber? Log in here