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In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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Michael Lewis’s Flash Boys Is a Waste of Time for Value Investors

Value investors should not waste their time and money on Moneyball author Michael Lewis’s new book Flash Boys. Even though the big media is absolutely in love with it, Flash Boys will tell experienced investors little or nothing they already know.

I can safely make this statement without having read Flash Boys after seeing Mr. Lewis’s silly and self-serving interview with Sixty Minutes’ Steve Kroft. The highlight of the interview is Mr. Lewis’s statement that the stock market is “rigged.”

We value investors can agree with that statement; in fact, we’ve known it for years. The stock market is rigged against speculators and traders. It always has been and always will be.

The stock market is rigged against speculators, those who think that they can make a fast buck by quickly buying and stocks. The market was rigged against speculators back in the 1920s when peddlers were selling stocks on the curbsides of New York City, and it’ll be rigged against speculators a century from now when artificial intelligences are trading stocks on the moon.

Michael Lewis Proves He Doesn’t Know Anything about the Stock Market

Lewis makes the fundamental error of confusing speculation with investing. That alone should tell us that he knows little or nothing about the market and should be ignored. Unfortunately, he won’t be ignored, because his brand of pseudo journalism panders to popular prejudice.

flash boys

Lewis’s thesis is that most trades in the market are done by electronic algorithms at very high speeds, which is true. Yet as any value investor will tell you, it makes absolutely no difference. The nature of the trading has nothing to do with the underlying value of the stocks being traded.

His other argument is that a lot of trades cost too much because a group of people he calls “high speed traders” can increase the price of transactions because they can predict your trades and move first. That may or may not be true, but there’s an easy way to avoid those charges; it is called buy and hold. Simply don’t trade too much and the cost of the trades won’t matter that much.

You can beat the high speed traders by simply refusing to play their game. Value investors have known that since Benjamin Graham’s day. We don’t need the new market or the technical fixes that David Einhorn was peddling on 60 Minutes; we just need a little common sense.

Do High Speed Traders Actually Exist?

The high speed trader argument is problematic for another reason. Neither Lewis nor Steve Kroft was able to produce a single example of a “high speed trader.” Since they claim high speed trading is not illegal, they should have been able to get such an individual to appear on Sixty Minutes. I imagine at least one such person would have been happy to go on prime time and show off his yacht, his private jet, and his brand new Ferrari.

Mr. Market
Mr. Market’s reaction to Michael Lewis.

Yet they couldn’t find any of these people. High speed traders sound a bit like Bigfoot or the Loch Ness Monster; we will hear a lot about them in weeks to come, but we will never actually see one.

Instead of actually showing us proof the high speed traders are real, Lewis argues they exist because a lot of money is being spent to build faster trading systems and locate exchanges or link ups in such a way as to give traders a speed advantage. He claims this proves his argument; the idea that those investing that money might be chumps trying to beat the system never occurs to him.

How Flash Boys Will Hurt Average People

The worst part of Lewis’s argument is the way in which it will hurt people. We know that the stock market is one of the best generators of wealth around, yet only around 52% of Americans own stocks, according to a Gallup Poll last year, a number that’s down from 65% in 2007. Part of the reason why income inequality is increasing in the United States is that the rich own stocks and the rest don’t.

Lewis will make that situation worse by promoting the myth that the stock market is some sort of casino that’s rigged by some secret cartel of rich fat cats. Large numbers of people will have an excuse not to invest money, and they’ll lose what they little have to inflation.

Con Artists Will Love Flash Boys

There is another group that will benefit from Lewis’s simple-minded analysis: the con artists of the world. After seeing Lewis on 60 Minutes, thousands of fraudsters are out there right now preparing all sorts of new scams in which they will sell the “secrets” of the high speed traders to the suckers of the nation. Large numbers of people having read Flash Boys will think they know “how the market works” and become easy marks for scam artists peddling the “secrets” of the flash boys.

The hype around Flash Boys should remind us of another important lesson from the great investors: ignore the media. The media doesn’t know what it is talking about and should be ignored.


If you’re looking for a good book about the stock market, go and reread The Intelligent Investor right now. If you’re looking for an entertaining work of fiction disguised as journalism for your summer beach read, you can always give Flash Boys a try. I for one am not planning to waste my time with it; judging by Lewis’s statements, I cannot learn a thing from it. Why should I listen to a man who admits by his statements that he knows nothing about the market or how it works?

The Fool Gets Foolish

The worst part of Lewis’s drivel is that some big-time investors are promoting it. Sadly enough, even Motley Fool CEO Tom Gardner is hyping Flash Boys and promoting its silly message. My guess is that Gardner knows good and well that Flash Boys is nonsense and he doesn’t care. He knows that he can get a few more hits to his website if he mentions the words Flash Boys.

It’s one thing if journalists whose ideas about investing come from the movie Wall Street buy into Lewis’s sophomoric conspiracy theories. It is another if somebody who understands or claims to understand the market, such as Tom Gardner, promotes them.

Investors need to examine the Flash Boys phenomenon because it could hurt us. Lewis’s silliness won’t affect the market, but it will influence those who make public opinion and, worse, set policy in Washington.

Sooner or later Flash Boys will be exposed as nonsense, and those that promote it will have their reputations destroyed. The best move for investors is to stay as far away from Flash Boys and those who embrace it as we can.

As for Michael Lewis, when a year from now he’s on QVC selling copies of the Flash Boys Method for Beating the Market, we value investors can tell the journalists we told you so. One has to wonder if Tom Gardner will remember the name Michael Lewis when that happens.

Note this post is a few months old I added it because I need content for the site.