Many investors sold in 2008 when the economy was in dire straits and computer trading exacerbated the situation. "I simply cannot take the volatility" many exclaimed and that is completely understandable. Of course, what they did not recognize was that the volatility was directly related to computerized trading. Just as quickly, when sentiment shifted, the other direction computer programming took over and we saw a historic rally upward which many investors missed. So, in an era when volatility is at high level, one has to make a determination about time horizon and how much short-term anguish can be endured when the computers kick into overdrive9
Banks of computers or driving investors out of the market and it's simply not right. I have been a proponent of the perspective that the playing field must be leveled and individual investors without millions of dollars to pour into computerized trading, should be given the same opportunity for success as big institutions. But while I believe this is important, I doubt significant action will be taken.
I'll let you draw your own conclusions on why that might be the case.
In the meantime, time horizon assessment is what's key. If one is a short-term investor trying to compete with technology far superior to anything mere mortals can afford, one should really rethink the investment strategy employed. The reality is it's a new world for investing and understanding the landscape is critical because the environment has changed permanently.
Michael Yoshikami, Ph.D., CFP®, is CEO, Founder and Chairman of YCMNET's Investment Committee at YCMNET Advisors. Founded in 1986, YCMNET is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutional investors and individual investors. The firm works with clients around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009 and 2010. He oversees all investment and research activities of the firm and is actively engaged on a daily basis in the firm's securities analysis activities and determines the macro tactical asset allocation weightings for client portfolios. He works with YCMNET's investment team in integrating behavioral investing strategies with the firm's core fundamental perspective. Michael holds a Ph.D. in education, other advanced degrees, and holds the Certified Financial Planner® (CFP) designation.