Randomly Noted

Let’s imagine you are an investor of certain but not overwhelming means who researches and buys the common shares of specific U.S. companies.

You read the securities firms’ research reports on these companies, you know how to navigate balance sheets, perhaps you have your own ideas about societal trends that will influences companies’ success and failure.

You are supposed to be one of the mainstays of the stock market, the fundamental, long-term individual investor who tries to apply research and reason to stock picks.

Then, concerned about what caused the “flash crash” of May 6, 2010, you plow through the recently released 104-page report compiled by the staffs of the Commodity Futures Trading Commission and the Securities and Exchange Commission.

Early on, you come across this lengthy paragraph: “HFTs (high frequency traders) and intermediaries were the likely buyers of the initial batch of orders submitted by the Sell Algorithm, and, as a result, these buyers built up temporary long positions. Specifically, HFTs accumulated a net long position of about 3,300 contracts. However, between 2:41 p.m. and 2:44 p.m. HFTs aggressively sold about 2,000 E-Mini contracts to reduce their temporary long positions. At the same time, HFTs traded nearly 140,000 E-Mini contracts or over 33% of the total trading volume. This is consistent with the HFTs’ typical practice of trading a very large number of contracts, but not accumulating an aggregate inventory beyond three to four thousand contracts in either direction.”

And you think, is this the same market where your research and thought goes into picking companies whose earnings you believe, over time, will grow? Moreover, can these two ideas of stock markets co-exist?