I am curious as to whether people still believe the old financial maxim of “Sell in May and go away”? Does it still makes any sense in this modern age of computers and the internet, where stock market transactions can be carried out easily from wherever you – at home, on holiday, or in the office. It does however seem that the markets have a tendency to fall at this time of year. Perhaps it is nothing to do with technology, and more of a seasonal financial come political event where problems are left unresolved until the autumn. As a result the markets will always pull back at this time of year whilst they wait for a resolution.
I have a particular interest in this question as I would like to stay invested in the UK smaller companies and the UK equity income sectors. British manufacturers are doing well at the moment, probably better than reported in the press. Unemployment continues to improve and now we read that wages are starting to rise ahead of inflation. At the same time the government is promising to spend less, which should eventually mean that they will take less. All of this is good news and, without the Greek problem, surely these two sectors would be racing ahead. But would they, or would the above maxim come into play? A long- term passive approach might just be to accept the spring fall, when, and if it happens, and stay invested waiting for the autumn recovery. I however, hate the thought of taking the potential fall, and so I will sell half and watch and see what happens. Selling the other half, if the fall continues whilst I wait for calm to return to the markets and these two sectors.
I was recently given the book “Flash Boys”. This is a book about High Frequency Traders (HFTs), a subject which up until then I knew nothing, never even having heard of the expression. Now I have, and I feel as if I am chewing on barbed wire. Yet again the Banking world has found a way to extract many billions of dollars from the investments, pensions and savings of the public.
It is all based on being able to take advantage of the difference in the speed of communication between different stock trading centres in America. This difference in time is being measured in milliseconds (a thousandth of a second). As an example of this speed, a blink of an eye will take about 120 milliseconds, and that used to be the time in which a stock trader could send an order from Chicago to New York and back four times. Now along come some extremely clever people who work out that by being able to reduce this travel time and keep this advantage to themselves they are able to look into the minds of their competitors who are still riding on the slow train. This they do by writing complicated algorithms and re-routing new optical fibre cables which are carrying their transmissions. By increasing the speed and shortening the distance between the trading centres it results in a time saving of tens of milliseconds. This believe it or not, is a sufficient amount of a time advantage for them to be able to second-guess the market and thus earn them many billions of dollars a year. Obviously it is far more complicated than this, but I however, have passed my level of understanding and if you wish to know more then you must read the book. It is said that HFTs were responsible for the flash crash in 2010 when the American stock market fell 22%. They made money by being fore-warned and withdrawing from the market and selling short. This made the situation worse for everybody else.
Why I am chewing barbed wire is that these brilliant people are making no contribution to the health and well being of the financial world or the planet, yet were earning themselves vast wealth on what to me is an empty exercise. This is the action of a parasite, albeit a very clever parasite!
I now make a comparison with the scientists working on the Large Hadron Collider. This is a 27 kilometre long accelerator built 100 metres below CERN. Again they are working in the realms of incredibly high speeds and millisecond times as they smash particles into each other at velocities approaching the speed of light. They are trying to recreate the scenario close to the conditions that existed in the very first microseconds after the Big Bang. These physicists are probing the origins of the cosmos as they expand our knowledge of the Universe. They are however undoubtedly receiving far less remuneration than their skills would command in the financial world. Similar comparisons could be made with many other altruistic professions .
This is enough to give the devil the hot sweats and cannot continue forever. I am curious as to what has to happen to bring a levelling of the remuneration playing –field in the future. Surely we need our brightest minds to be putting their efforts into work that is beneficial for everybody not just for personal gain.