The promotion of Michael Lewis' new book has caused a significant amount of discussion in the media around whether or not High Frequency Trading (HFT) causes harm to the integrity of financial markets. The debate is very interesting. One argument says that HFT makes markets more efficient and expedites the arbitrage of the occasional inefficiency, while the other says that it is a big scam causing investors to lose out on profits.
With the right investment philosophy, there is no need to be overly concerned by either side of this debate. The ability of High Frequency Traders to rapidly create small profits using superior technology is not a new phenomena; it is an issue that is generally present when dealing with market orders and order routing. As an example, an active manager who wants to trade specific securities within a short period time would be affected by these issues.
A market based approach to investing does not require large market orders, and it does not require rapid trade execution. Investing in asset classes rather than the latest hot issue means that individual stocks with the right characteristics become interchangeable parts in a much broader strategy. The flexibility in this approach eliminates the need for the immediate liquidity that HFT is able to profit from.
Original post at pwlcapital.com