The Investor’s Enemy
Investors have an enemy.
It’s not hackers from China or Russia. It’s not armed goons outside your door.
The investor’s enemy is in their own backyard. It’s high-volume traders and hedge funds on Wall Street with sophisticated high-speed trading tools that are costing you the individual investor to the tune of $5 billion a year.
By essentially butting in line using sophisticated trading algorithms to gain a benefit over Main Street investors through a process called latency arbitrage.
Latency arbitrage trading involves arbitraging prices gleaned with low latency – in fractions of a second – from certain exchanges to beat other investors to the punch.
By cutting in line and beating ordinary investors by even a fraction of a second, high-volume traders can snatch up better prices – buying at lower prices and selling at higher prices than the investing public. This trade practice costs investors billions of dollars annually.
How can you defend yourself from this enemy?
Don’t play the Wall Street game.
The odds are already stacked against Main Street investors. Heck, even financial advisors and professionals have a hard time beating the market.
In the past 20 years, retail investors averaged a 2% annual return that, when taking into account inflation, the average retail investor has lost money in the stock market.
- Invest in assets beyond Wall Street.
- Invest in assets that can’t be manipulated by sophisticated computer algorithms.
Arbitrage is the ability to gain a pricing edge from information advantages.
Alternative assets – assets outside of Wall Street – play by different rules than public equities where information is legally mandated to be disseminated in real-time. It’s impossible to beat machines in this environment.
Fortunately, alternative investments such as real assets still offer arbitrage opportunities for those with boots on the ground.
Experts in their fields and their geographic markets can profit from information advantages not available to everyone else. Being in the right place at the right time to hear about off-market opportunities gives local experts tremendous market advantages.
Alternative investments are long-term investments immune from volatile Wall Street day trading and mass selloffs.
High-speed trading like latency arbitrage is used to gain an advantage over you, but it’s only one of many of Wall Street’s tricks.
To protect yourself against Wall Street, rethink your investment strategy:
- Seek out alternative investments.
- Seek out experts in their alternative asset segment in specific geographic locations to gain your arbitrage advantages to avoid the traders and hedge funds (the so-called “experts”) trying to profit from your portfolio.
- Forego day trading and speculation and partner with alternative experts for the long-term to avoid Wall Street volatility and to insulate from being taken advantage of.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.