I have finished reading Flash Boys by Michael Lewis. (I will present my synopsis of this book tomorrow at the May 2 First Friday Book Synopsis). And, though I have already posted about this book a couple of times, I suspect I will a few more times. Michael Lewis gives me a lot to think about.
And, to be honest, I’m not sure I fully understand everything he told us about in the book. But, I don’t feel too bad about that – the main story in the book is the story of Brad Katsuyama, who spent a lot of time!, and put together a pretty impressive team, just to figure out how today was not yesterday.
So, here’s this post prompted by the book:
Today is not yesterday.
There is no “Stock Market” – There are 50 Stock Markets, and the number is rising…
And, we didn’t quite know that today is not yesterday.
And this today replaced yesterday really quickly. (Since 2008 – a scant six years ago).
And, by the way, there’s a pretty good chance that the today that is today will not last as long as the “today” of the past lasted.
Here’s what I mean.
In the old days – yesterday – there was a stock exchange (ok – three). Everybody went to the same place to buy, and sell, stocks. The stock broker – the middle-man – took your order, and oversaw the transaction for you in the stock exchange.
That stock exchange was an actual place, with people handling the orders. People – human beings.
That yesterday is now past. There is no stock exchange. There are fifty stock exchanges – and counting. And there are no men in suits making the transactions for you. It is all done by computers, in some room somewhere where there are no people. These computers are all following the algorithms that have replaced the people, and… the HFTs (the High Frequency Traders) are driving the whole process.
From the book:
Over the past decade, the financial markets have changed too rapidly for our mental picture of them to remain true to life…
That picture is dated; the world it depicts is dead. Since about 2007, there have been no thick-necked guys in color-coded jackets standing in trading pits; or, if they are, they’re pointless…
The U.S. stock market now trades inside black boxes, in heavily guarded buildings in New Jersey and Chicago.
And, here are the numbers of “stock exchanges.” For many years there were three, with the New York Stock Exchange as the big dog. Then, all of a sudden, in 2008, there were 13. Now, 6 years later, there are 50.
Today is not yesterday.
But, a whole bunch of people haven’t gotten the memo yet that yesterday has been replaced by a new today.