The sense that the stock market is rigged became the majority view of disgusted investors in 2012, according to a Yahoo Finance article, “In 2012, Many Felt the Market Was Rigged.” This view is attributable to many factors, including the complexity and lack of transparency of multiple exchanges and alternative networks and the degree to which the market is dominated by high-speed, computer-driven trading. The stock market feels like one of those dark-tunnel, high-G-force roller coasters that are really not so much fun for middle-aged folks.
Scary, yes, but rigged? Apparently, yes. According to the article, thanks to some regulatory changes in 2000, “automated scalpers” are able to make profits legally by engaging in an otherwise illegal process called “front running” (trading ahead of customer orders of which they had knowledge). Such conduct caused the New York Society of Securities Analysts to state that “public confidence in the integrity of equity trading markets appears to be at a once-in-a-generation low.” Fundamental securities analysis seems to have become irrelevant in the fast game that the stock market has become.
Unfortunately, investors who do not want to participate in the stock market are often steered into complex, opaque and illiquid alternative investments, such as hedge funds and nontraded real estate investment trusts, many of which have been disastrous. These products are typically weighed down by high commissions and expenses that unjustly enrich the selling firms and their agents. Investors and their advisors should be very cautious in considering investment options.
Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.