Is the Market Rigged?

By Craig Verdi, CFP®

I hear this question a lot more than you may think. The short answer is NO, the market is not rigged. We have the most efficient market in the history of the planet. If Warren Buffet buys a share of Coke (KO) and I buy a share of KO, we get the exact same deal (assuming we order simultaneously). There is no advantage for the rich guy, and he owns a lot of KO.

Now, what about high speed trading, options, futures, etc.? Are they rigged? My answer is “not really.”

Let’s look at an example and you tell me if it’s “rigged” or not.

You are selling your house for $875,000. You get two offers. The first offer is for full price. It is contingent on the buyer closing on his current house and his bank approving a loan. The second offer is for $865,000 in the form of a cashier’s check, and the buyer can close today. Which one is more attractive? If you picked offer number one that would be very strange. Almost all of us would take the sure deal with cash in hand.

Question: Was your house deal rigged in favor of the cash rich buyer? He had the advantage because he was “rich”. Well, guess what? Anyone in America or wherever who has lots of capital has an advantage. For instance, they have enough money to get the very best price on stocks that have “spreads”, and the same goes for bonds. They can get discounts in various forms. They can buy the technology that we can’t even think about. So they gain a slight advantage. Does that change the price of Coke or Walmart (WMT) stock 10 years from now? No.

So you can say it is rigged, but it really will have almost zero effect on the price of your portfolio when you retire or need it for one of life’s big events.