Monday, August 23, 2010

High-Speed Trading & Quality Large Caps

In this Barron's interview, Morris Mark makes the following notable points:

- High-speed traders pull out about $ 20 billion/year from the system whereas their predecessors pulled more like $ 200 million. If true, that's a 100-fold increase in frictional costs. So there is now substantial additional frictional costs in the system that seems to benefit only the high-speed traders. The costs, naturally, are borne by other market participants.

- On a more positive not, he says quality large caps can be bought at no premium and added that Google, IBM, and Coca-Cola are examples.

- Coca-Cola's pervasive brand and distribution system are crucial assets especially as the emerging middle class continues to grow.

The long-term economics of businesses like Coca-Cola tend to be very favorable. Businesses with brands and strong distribution are often capable of producing durable high return on capital over the long haul.

Unfortunately, high-speed trading won't be reigned in anytime soon. Check out the full interview.


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