Alec Hogg: High frequency trading puts retail investors into penury

Warren Buffett tells us his average holding period for a stock is forever. With exceptions only made should the company become embroiled in a scandal – because "there is never only one cockroach in the kitchen." He has been following his own advice recently by selling out of US bank Well Fargo, for years one time of Berkshire Hathaway's Top Five investments.

We also know intuitively (and often from experience) the inverse of the "forever" principle is a guaranteed cost booster and thus loss maker. Indeed, the shorter the average holding period of purchases, the heavier the negative impact on one's wealth.

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Four academics from Taiwan and California have now quantified the annual performance penalty for high frequency retail traders is 3.8% a year, with "virtually all individual trading losses traced to aggressive orders." You can download the PDF of their paper by clicking here.

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