Flash Boys by Michael Lewis

Summary

The dog barking up the wrong tree is the best way to summarize what this book is about. It is doing a disservice to the investment community by planting wrong concepts and ideas about the impact of the HFTs. The promotion of creating a new exchange more evil than the ones we have is unforgivable.

Review

High-Frequency Trading has been on the headlines on business news media for a long time. Yet, normal people never learn about it until this book, Flash Boys, introduced the idea to the mass public. Michael Lewis has many books written under his belt before Flash Boys and the narrative shows. The book is an easy read overall and it delivers what the author intended – telling more people about HFT bots and their evilness in hurting the investment public.

Flash Boys uses a story-telling method to lead the readers onto an “adventure” with the main character. As the story unfolds, the readers will learn that HFTs have dominated the the stock markets and can hurt the “naive” investors badly. As one-sided as any investigative report can go, this is a classic example of sensationism – 10% truth mixed with 90% propaganda.

So what is the propaganda? The book promotes the creation of a new exchange where there can be no HFTs. And coincidentally, when the book was released, we’ve learned that Mr. Lewis was working closely with the founder of a new exchange doing exactly that. This should not be a problem if the new exchange promoted is really doing the world a service but that is far from the truth. Reality is that this new exchange is as bad as it gets because in place of many completing HFTs, you have one big brother “making the market”.

Flash Boys failed to mention the victims of the HFTs are not really the retail investors but the active players in the game. Remember, these active players are the ones used to take advantage of the retail investors themselves. In another words, these people are crying foul when they are outwitted by people (or bots) more ruthless than they are.

The reality is much more straight forward and boring – technological advancements always replace people when efficiencies count. The rise of the HFT bots is inevitable and it is not necessary a bad thing. It is bad only when the governing bodies fail to impose necessary rules and control to maintain a fair ground for all parties.

Better yet, rise of the bots makes the stock market extremely predictable. For those investors who clitch onto old habits, of course they will fail to see the new patterns emerged from this new class of market participants. Being a trader / investor, it is our responsible to adapt to the changes in a market place to stay ahead.

In summary, I cannot rate this book being useful other than introducing the public to the concept of HFTs. It is guilty of misleading everyone with wrong conclusions and definitely wrong solution, a more evil exchange. It is a good read but not as good as some older books written by Mr. Lewis. I suspect the quality of this book is tainted the moment Mr. Lewis was tipped off by his source, who has a very different agenda behind.

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