In retrospect, I took a fairly predictable approach in my Saturday newspaper column to last week's stock market glitch: The shocking dip was likely to make already cynical retail investors (hit by the financial crisis and allegations against Goldman Sachs Group Inc.) even more suspicious that the stock market is a rigged game.
Kid Dynamite has a different approach. He believes there has never been a better time in history to be a small investor in the United States, and he backs up this assertion with a few points.
1. There are a lot of exchange traded funds to choose from. These are baskets of stocks that look like passive mutual funds but are cheaper and trade throughout the day on exchanges. They give small investors a low-cost way to gain diversified exposure to pretty much anything they want.
2. Trades are cheap. Now, investors can buy and sell stocks for $9.99 (U.S.) or less (they can get similar rates in Canada).
3. The spreads between bid and ask prices have fallen sharply over the past 10 years, to just pennies today, which also lowers trading costs.
4. Little investors have access to near-unlimited quantities of information, from official filings, to news, to research reports, to rumours.
"If you want to talk about how markets are rigged, I think they are actually rigged in one way: against the prudent short positions," Kid Dynamite said on his blog. "Markets are rigged to go higher. We need them to - our society's spending habits depend on it, because we have come to think of the value of our portfolios as synonymous with our wealth."
"If you're really the investor you claim to be, you don't care about short term price movements, and need not lose faith in markets because of the short term aberrations."
These are good points. However, many of the technological innovations that Kid Dynamite outlines have simply given investors the ability to move faster rather than better. Cheap trades encourage trading, which might explain why the average holding period for a stock has fallen over the past 50 years, from several years to just a few months.
The other problem - and this is what I tried to get at in my Saturday article - is that recent snafus and nefarious behaviour among professionals have underscored a sneaking suspicion among many small investors that fundamentals stand no chance next to bigger, hazier forces.
It's one thing to dismiss last week's sudden dip as a minor event that won't affect long-term investors. It's another thing entirely to dismiss the devastation that followed the financial crisis, which continues to weigh on retirement portfolios worldwide, and is the biggest source of investor cynicism.
David Berman