This week I completed the book Crapshoot Investing "How Tech-Savy Traders and Clueless Regulators Turned the Stock Market into a Casino"
Great book that gives you some inside in the flash crash and how we got there.
Despite the author mentions that the book was produced under a tight deadline I think he did a fantastic job to inform the public at large some important information.
Crapshoot Investing is the story of well-intentioned but disastrously wrong-headed decisions by Congress ad securities regulators in the destructions of investor's faith in fair markets.
The change in the investment landscape by High Frequently Traders (HFT) has turned the entire equity market in a gigantic derivative product with no underlying value. The same phenomenon that had brought down the markets in 2007.
HFT's look at historic price discrepancies and buy stock on that basis. They don't care what the name of the underlying company is or what its future growth is going to be. HFT merely tries to predict if a stock will go up or down over the next several minutes.
Personally I think that not only the machines (HFT) have lost touch with the market fundamentals. A lot of retail and professional investors are also playing the momentum game, which has of course nothing to do with investing.
The classic buy-and-hold strategy has been a big bust. The market has become a lighting fast roller coaster.
The market was supposed to be fair efficient, and friendly to long-term investors. It turned out that it wasn't any of these things. Because of the micro-managing of the SEC, the market has become unnecessarily complicated, disproportionately volatile, and less accountable then ever before.
The old system that had been dominated by market makers may have been imperfect, but it had worked fairly well for decades.