Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market into a Casino Hardcover – Mar 1 2011
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From the Back Cover
“The government’s master planners have done it again! Usurping the role of ‘invisible hand,’ they have inadvertently destabilized the stock market and frightened off long-term investors. McTague sardonically chronicles how this happened and the new dangers the meddling has created for the investing public.”
–Larry Kudlow, Host, The Kudlow Report, CNBC
“Jim McTague is the best, because he refuses to report like the rest. He was the first to report in the dot-com boom that earnings should matter, and in the real estate boom, that simple math matters. Some might call that being the skunk at the picnic. Pity we don’t have more skunks.”
–Neil Cavuto, Host, Your World with Neil Cavuto, Fox News Channel
“Jim McTague presents a ferocious verdict on the state of the markets after the Flash Crash of 2010. It takes a strong mind to read the anecdotes and reporting in Crapshoot Investing and not break down laughing. Cash under the mattress or in a coffee can? Far more secure than the ticker tape.”
–John Batchelor, Host, The John Batchelor Show, WABC Radio Network
“This fascinating and compelling book is a must-read for anyone that invests in the stock market. Jim McTague pulls no punches in telling the alarming story of how these markets have been transformed into risky casinos. If you plan to be one of the winners, this is a book for you.”
–James R. Barth, Lowder Eminent Scholar in Finance, Auburn University
“This book is like a fast, furious, and sometimes airborne motorcycle ride. It hurtles along, avoiding the obstacles that lie in the path of investors, devilishly constructed by Wall Street and haplessly beyond the ken of the regulators. It is not a book that makes you feel good about your 401K, but you will laugh aloud often.
–Llewellyn King, Host, White House Chronicle, PBS
“McTague’s book is an indispensible read for everyone interested in the problems and benefits of replacing human traders with algorithmic machines in one of the most important markets in the world. The equity markets play a central role in the allocation of scarce resources to many of the most productive enterprises that provide jobs for workers, and goods and services for consumers. Short-term retail investors should also consider Jim McTague’s advice: ‘It has become a shark tank and we are the anchovies.’”
–Robert Auerbach, Professor of Public Affairs, The Lyndon Baines Johnson School of Public Affairs, The University of Texas at Austin
The equity markets are now nothing more than high-speed casinos: white-knuckle rollercoaster rides that have left individual investors legitimately terrified of equities. The Flash Crash of May 6, 2010—when the DJIA plummeted 734 points in 17 minutes and dozens of top companies traded as low as zero—was just a harbinger of even greater disasters.
In Crapshoot Investing, Jim McTague, Barron’s Washington Editor, reveals the twin causes of this massive transformation: high-frequency traders using mathematical hocus pocus and blundering regulators whose new rules have massively backfired.
McTague takes you through the Flash Crash moment by moment, revealing what happened and how it happened. Next, he burrows “under the volcano” to uncover the titanic, uncontrolled forces at work in equity markets, showing you exactly what you’re up against when you trade stock. Last but not least, he presents a rational strategy for investors who need to get ahead in markets that have become riskier than most casinos!
- Bi-polar markets: from mania to depression in an instant
The massive new forces pumping new volatility into the markets
- How markets are selling unfair advantages—at your expense
How some traders buy privileged access—and tilt the markets against you
- The new SEC rules that helped destroy the markets
…and what must be done to fix them
- How to invest successfully in a shark-infested market
A disciplined new approach to long-term investing: today’s only route to success
Most Helpful Customer Reviews on Amazon.com (beta)
In his brilliant new book, Crapshoot Investing, James Mctague, the Washington Editor of Barron's, chronicles the effects of High Frequency Trading (HFT) from the crash of October 1987 to the more recent Flash Crash. Despite it's eye catching name, this is a serious book about a serious subject by a serious author. McTague is gifted in being able to write in a clear, concise and easy to read manner that propels the reader forward to the end without losing any of the original enthusiasm.
Due to high technology of super heated computers, collocation, and amazing algorithmic programs, information can be gathered, stocks bought and then sold all in a matter of seconds to milliseconds resulting in profits of a tenth of a cent to a cent per share traded. This seems pretty tame until one realizes some nine billion shares are traded daily and the yearly take is between two and twenty billion dollars.
Dark Pools and other esoteric vehicles of trading are exposed and brought to light. Government regulators are not spared. Hamlet had it right. "Something is rotten in ...". Supply your own term.
So what's a po' boy (girl) to do? One could do nothing, soldier on and hope a Bill O'Reilly type is looking out for the folks. Then there is the mattresss strategy so favored by Granny. One could sell it all, spend it all and let the Devil take tomorrow. But the one that makes best sense is to read and reread the last chapter where the author offers his advice on how you can keep the playing field more level.
Run, do not walk to your nearest bookstore or go on line to pick up your copy. Better yet, take advantage of this superheated technology and download a copy on your IPad or Kindle or other device and begin to read it immediately.
It discusses many areas that have changed in the market over the past decade that I have not seen addressed in any main stream book.
Did the high frequency traders that were plugged directly into the exchanges computers cause the flash crash? Was it a mismanagement of an algorithm or something more systemic? One theory is that much of the trading volume today is simply high frequency traders scalping the market back and forth over and over. Once they step aside and do not buy the big sell orders come in and drive prices down dramatically. The big sellers misunderstood the volume and liquidity in the market and inadvertently crashed prices when all the volume disappeared or went short as a big order hit the book.
Many people that the author quotes in the book believe that regulators in their attempt to make the markets more fair for the retail public threw them out of balance. By draining away volume from the main exchanges and spreading it across many for the sake of the best prices, it unbalanced the market and made it hard to put in place circuit breakers in the midst of a crash. The regulators ran many market makers out of business by changing from fractions to decimals and replaced most of them with machines.
The book was very interesting showing how high frequency traders trade with no regard to the underlying businesses of stocks, trading them like chips on a roulette table, they simply game the stock for penny gains all day by programming computers with the odds of successful trades and front running orders by mutual funds and bigger money managers.
After twelve years of trading I have noticed changes in how the market performs and this book may explain a lot of the strange behavior where stocks become completely removed from any underlying business value or start an uptrend for no rational fundamental reason. Very interesting, informative, and enlightening book. I highly recommend.
This book does an excellent job of explaining the "flash crash" and the major changes in the stock markets that made it not only possible, but likely.
Although I have an undergraduate degree in Finance, and an MBA, I feel this book was written in such a way as to be easily understood by most investors.
The author points out the failures of the SEC, as well as the advantages possessed by the High Frequency Traders and other players in today's market.
The author also supports the return of the "Uptick Rule", which I also support.
The author at the end of the book, does show there is some light at the end of the tunnel for the individual investor - if he takes a long term approach, does his research, and purchases stocks properly.
However, the book is oddly titled because what it proves is precisely that the market is not a 'crapshoot' at all. It's a rational, failsafe system by major brokerages and hedge funds with powerful tools to take your money from you by maintaining a digital edge you cannot hope to equal - there is nothing random about it. Using short term strategies, individuals are now pretty much guaranteed to lose to more sophisticated players over time. Yes, there are some things the little guy can still do successfully, such as anticipate that a certain company will do well over the next decade, and buy and hold. Sticking to the longer term is where humans still have an edge over machines. Even then, the computer traders will be able to divert some of your profits to themselves by overcharging you for your trades. The book is discouraging but well worth reading if you want to know how the stock market really works. Recommended.
It is unfortunate that practices such as the ones discussed in this book have completely destroyed the idea of who deserves to have public support (for moral or financial reasons) and the people most likely to be hurt are those who put their money where their morals are. I no longer feel excited about markets of any kind. The Stock Market has become as corrupt as everything else.
What you will learn from this book is that it doesn't much matter what a company is doing, only what it can be bought or sold for (sometimes only at a penny's profit) in literally seconds. Dealers who trade in millions of shares have completely replaced value with money made from volume and speed and the solutions presented here probably won't be heard any more than those put forth in the past. For more on that see the academy award winning documentary "INSIDE JOB" also available from amazon. I vote we go back to buying from companies we trust and let the whole system fall on its pompos backside.