The stock market was created for investors, who by investing grow the economy as a whole, but it has been taken over by traders, who are helpful for greasing the wheels of the exchange but ultimately not necessary in anything like today's numbers. It would seem by competition for a commodity service they should start killing each other off but so far it seems there are still enough amateurs in the game to keep them well-fed.

So in short, make sure what you are doing is investing and not trading. Investing still pays off. Trading is like jumping into a tank full of robotic sharks.

I mean, consider: a report got released 400ms early. So the price of the futures fell 400ms early, and some trading firm made money off of that fall (instead of some other trading firm making said money.)

What's the impact on you of the price changing 400ms early? Even if you held that asset, were you really planning your trades to the second, let alone the millisecond, to begin with? No? Then it doesn't matter.

Buy-and-hold broad index funds for decades on end, then you need only fear macroeconomics and political risk.

Market makers aren't competing with buy-and-hold investors. Price fluctuations like this don't affect people that are investing in the fundamental performance of the underlying company. The price may swing by a few percent randomly in either direction, but in the long run, a growing company will have a growing stock price.

Equities make up much of my portfolio and I haven't been disappointed. As cynical as everyone is about how "big companies suck", they have historically done a pretty good job creating value. And I think that will continue for some time.

It's not like resources can run out or anything. You just dig up more.

This sounds like an oxymoron.

Financial efficiency and value often appear to be at odds. Amazon certainly appear to spend less resources in the delivery of goods. Low cost of acquisition isn't necessarily correlated with greater value in terms of human fulfilment.

I've often wondered why we don't have [more/widespread] community kitchens, less work needed for food production, reduced waste and transportation costs, etc.. Why can't I go somewhere and get a quality, healthy meal that is cheaper than what I can make at home.

The long answer is a consumer's collective. If you are in the US a good example are the credit unions, where fees (of all kinds) largely don't exist. In the US, Consumer's Collectives legally have a democratic corporate structure. Private corporations legally are more like a dictatorship. Public corporations have a board of directors and are legally more like an oligarchy (unless one single person constitutes most of the board).

http://en.wikipedia.org/wiki/Consumers%27_cooperative

Limit orders make sure that your buy or sell order are done exactly at what you want. Legally, the trade cannot execute unless it's at or below your limit if you're buying, or at or above if you're selling. That, more than anything else, protects you from small time fluctuations caused by HFT.

Going for the long term is really where the focus should be, though. HFT algos tend to fight cents or fractions of a cent(the event referenced here caused a 2% drop in the futures price, which came out to around 6 cents per : http://quotes.ino.com/charting/index.html?s=NYMEX_NG.H13.E&#... ). As a private investor, your focus shouldn't be on getting rich in a week. It should be making sure that the pile of money you have now gets bigger every year. Your limits shouldn't be the HFT-like fractions of a cent or tiny percentages, they should be in the 5-10% range for a return.

Also, since you're not going to win fighting HFT, don't bother. What they do shouldn't effect your overall strategy, because you're not in that space.

The solution is to realize that high-frequency traders are playing a different game than you, even though they're on the same playing field. They do weird things but it's probably not hurting your returns. (It wasn't HFT that imploded the big banks, Enron, and Worldcom, right?)

I'm not so sure. The financial system is a nonlinear dynamical system. The hallmark of such systems is that small local perturbations can lead to very large changes in system-wide state. High-frequency trading vastly increases the number of small perturbations, and while most remain local, there is a finite probability that some will percolate upward in scale. So micro-scale trading may increase our exposure to catastrophe.

Is there a magic money tree? That involves a lot more economics classes than I took, so I won't even attempt to answer.

I'd love a blog that explained how investing in stocks with all this irregularity can be done consistently well. I imagine it gets harder and harder.

Just look at LIBOR.

We all will be using HFT soon via proxy or already are. I would say this, possibly in the long run it is better as there will always be HFT algorithms that buy on the dip and take into account technical input as well as human input. Humans are irrational but machines only take a part of that into the algorithm, relying heavily on technicals, futures and news in addition.

But there will also be massive shorting efforts as this used to be a tenured skill, but now a machine can match anyone on shorting. Flash crashes are now always possible but also recover quickly. The only way to change this is to charge more for trades and throttles, then there will always be inequality there as well. This also sort of lessens run away bull runs as well as the machines will always pull back first or buy first if past thresholds are met and futures line up.

I think Apple's a weird case. They had a "down" quarter, which caused the tech analysts to go all crazy and claim that Apple's a sell. So that caused people to sell, which drove down the price, and dropping below 500 probably triggered a lot of people's stop loss strategies, which drove down the price even more...