I don't think I'll be using ETFs after all.

[walkinwood]

Quote:

Originally Posted by audreyh1 I don't think that's true. You will incur cap gains when you sell shares depending on the basis established when you bought the shares. It's the cap gains distributions that may be reduced compared to a similar mutual find.

I wasn't clear (what's new?) I do understand that I would pay cap gains on any shares I sold.

I meant that I, as an investor in the ETF, would not realize capital gains if someone else sold their shares. In the mutual fund world, the manager would have to sell shares and the cap gains would impact every share owner. In the ETF world, the cap gains would only be paid by the seller.

[bingybear]

Quote:

Originally Posted by audreyh1 But we've been through this stuff. Lots of volatile cliff hanger days in 2008. Nothing that indicated MF transactions weren't orderly. Nothing to disconnect them from underlying securities.

2015 3rd Ave stopped redemptions of the HY MF. One example given... so not nothing.

While I suspect that the market makers/authorized participants [AP]may have not filled the demand for people selling shares (agreeing with your point), I knew many that picked up individual stocks at deeply discounted prices inline with the drop in ETF prices early in the day. I'm not sure how disconnected the ETFs in those moments of time and how that extended to the end of the day (when it could be compared to MF).

As said before.... do what makes you comfortable.

[Gotadimple]

Quote:

Originally Posted by Tekward That is one of the reasons I chose not to use the Schwab Intelligent Investor robot investing. They send your trades to a third party, enabling HFT, which happens every time they rebalance. It sounds like a churning opportunity.

+1

[tmm99]

I've always been a MF person but I will have to start buying ETF's instead, because I am now a Canadian resident and the US doesn't allow US citizens who reside in Canada to trade non-registered (non-IRA, non-401K, etc) money in the US, except to sell and to reinvest dividends. I can buy ETF's and stocks in Canada while US MF's are off-limits. So, I'd say thank goodness for the ETF's.

[NW-Bound]

Quote:

Originally Posted by NW-Bound Some more information: One should read Flash Boys - A Wall Street Revolt by Michael Lewis to understand what HFT is all about. Basically, a large stock order is usually filled on multiple stock exchanges. The price quotes on these exchanges are supposed to be synchronized, but unless one has the same access delay to the exchanges, his order will be seen on one exchange before it appears on the others. A firm with fast access can see your order on one of the exchanges first, then "front-runs" your order on the other exchanges, and makes a few pennies per share on your order. HFT guys skim money off large institutional investors including all mutual funds. If you trade less frequently, it does not affect you, whether you hold stocks or ETFs. If your MF manager trades frequently, you will get hurt indirectly even if you buy-and-hold.

I am going to add a bit more about HFT for people who are not inclined to read the above referenced book.

Suppose an institutional investor wanted to buy 1,000 shares of Apple stocks. He saw that at the current lowest ask price of $104.50, there were 100 shares offered on exchange A, 300 shares on exchange B, etc..., plenty of shares offered to fill his order at the price he wanted. So he figured that if he sent out a market order, he would get it filled at that price.

What happened was that his order got to exchange A milliseconds before it got to the other exchanges. The HFT guys saw his order, and quickly canceled their shill orders on the other exchanges. Our hapless stock buyer got only 100 shares at the "advertised price" (bait), and the rest of his order filled at higher prices.

However, as a small investor, when I buy a stock or an ETF, I get what I see, even when I use market orders and not limit orders. It's because my orders are small enough that they get filled immediately at that ask price. Occasionally, I even get a penny or a fraction of it below the price I expect, even though I use a limit order. Weird, huh?

[LOL!]

Another book on HFT that came out before The Flash Boys is Scott Patterson's "Dark Pools". HFTtraders ply the dark pools, too. I think Schwab, TDAmeritrade, and Fidelity have such pools.

Most orders of more than 100 to 200 shares get split into smaller orders automatically nowadays because folks know that these HFT folks will jump on larger orders. If your broker is not doing that for your large orders, then you might wish to consider a different broker.

And price improvement should be routine at one's broker. The reasons is that all brokers get paid a rebate by the exchange for sending their orders to the exchange. Your broker should give you some of that rebate and not keep it in their own pocket.

[Lsbcal]

Vanguard in 2014 was supportive of HFT. Here is one link: Vanguard chief defends high-frequency trading firms

Quote:

Mr McNabb also dismissed claims that HFT firms sniff out when a large buyer or seller is trying to trade so they can push the market against them. He said Vanguard had examined these so-called "market impact" costs, by looking at tracking error in its exchange-traded index funds. "We actually have a really good perspective on this, and there's no question in our mind that the cost to investors through funds has come down," he said.

[LOL!]

There is no doubt that the cost has come down. And quite a lot … especially with no commissions on ETF trades.

That does not mean though one should not be wary of getting ripped off. If nothing else, just realize that I am trying to rip-off the person on the other side of my trades --- both buying and selling.

[NW-Bound]

What McNabb said was that HFT did not hurt his index funds or ETFs. That is true with any investor who does not trade frequently. When they are successful, HFT guys extract a tiny bit off the orders, and they cannot do that on every order.

HFT is a friction cost, and while I do not like to see people taking any profit off my activities while adding nothing, I have a lot more higher frictions in other transactions in life to worry about (sales tax, real-estate commissions, shipping costs, etc...) that I do not stay up night worrying about HFT. Of course, if you are a day trader, it will bother you more.

By the way, the above link shows an interview with Bogle who had something to say about HFT. Being too impatient to watch the video, I'd rather read a transcript but they do not have that.

[ERD50]

So can any of us take advantage of future flash-crashes? I think a few reported getting some real deals on the last big one, though some of these were also cancelled?

Place a buy limit order on SPY at maybe 15~20% below opening price on Monday, and change it only when SPY moves 5% or more? You could place this on margin so as not to drag your performance with un-invested funds while you were waiting for Godot.

Don't let the word 'margin' frighten you. If you have a 70/30 AA, you could place an order for an added 10% of your portfolio, and still be covered with your fixed income. You could look at your 70/30 as becoming 80/30 (110 total), and that would mean a allocation of ~ 73/27 when brought down to a 100% viewpoint - not far from 70/30. And the idea would be to do a quick sell after the fast dip.

-ERD50

[LOL!]

Back in 2010 I purchased an ETF at 10% lower than the opening price and it closed well up.

I would not leave any standing limit orders hanging order. Instead, I would just have an alert sent to my smart phone, so that I could make a decision depending on the actual circumstances. Of course, you need a broker that still works during these kinds of things.

[OrcasIslandBound]

I prefer ETFs to mutual funds, usually, because I feel more comfortable knowing that I can buy or sell them in milliseconds rather then placing an order and being vulnerable to market swings that might occur during the whole day while waiting for the transaction to be completed.

I do still own some mutual funds that aren't available as ETFs.

On an added note, I trade less than once or twice a year. So, I would probably be just fine with mutual funds also.

[Mulligan]

Quote:

Originally Posted by LOL! Another book on HFT that came out before The Flash Boys is Scott Patterson's "Dark Pools". HFTtraders ply the dark pools, too. I think Schwab, TDAmeritrade, and Fidelity have such pools. Most orders of more than 100 to 200 shares get split into smaller orders automatically nowadays because folks know that these HFT folks will jump on larger orders. If your broker is not doing that for your large orders, then you might wish to consider a different broker. And price improvement should be routine at one's broker. The reasons is that all brokers get paid a rebate by the exchange for sending their orders to the exchange. Your broker should give you some of that rebate and not keep it in their own pocket.

I have noticed that before and didn't quite know the reason. I mostly buy and sell issues that only trade a few times a day so I can follow Level 2 pretty easy. I have seen them change a sell order of mine on the screen from 500 down to 100 before. And sometimes they flat out don't even show at all a buy or sell from me on the level 2 screen.


Sent from my iPad using Tapatalk

[Lsbcal]

I've decided to go back to mutual funds from ETF's. The reasons:

1) Vanguard has changed its frequent trading policy to allow one back into a fund if more then 30 days have past after you've sold it. Was 60 days or you would have to use the mail.

2) One can go from ETF's to funds in the same day. Used to take 3 trading days. This is due to VG's new accounts which combine VG funds and ETF's.

3) Fund ER's are now the same as ETF ER's, e.g. .09% for VTV or VVIAX (large value fund).

4) I can better do a sell then buy at the day close without be concerned about bid-ask spreads and market moves between the sell and buy in ETF's.

5) I have to admit that the mutual fund feels a little safer but VG ETF's are probably just as safe.

[Options]

Here's Jack Bogle on ETF's:

Jack Bogle: Trump Is Wrong, ETFs Are Bogus and Foreign Investing Is Useless - TheStreet

Specifically:

Quote:

Exchange-traded funds are overrated and in some cases flat-out dangerous, Bogle said. "ETFs have become the new way to speculate," he declared, even though many ETFs are in fact index-based. But Bogle said that ETFs often focus on narrow sub-sectors. "There's a lot of niche-seeking," he noted, with new ETFs debuting what seems like every day. "There's a lot of junk out there." When he ran Vanguard, Bogle even rejected the idea of ETFs when they were proposed in the early 1990s. Eventually, State Street (STT - Get Report) debuted its ETFs, a whole new type of security that basically allowed mutual funds to be continually traded on exchanges during the trading day. (Vanguard did eventually follow with a large number of ETF asset classes for its funds.) "A lot of people will say that shows how stupid I am," Bogle remarked about his decision to pass on ETFs, but "I have no regrets about it." "Exchange-trade funds are fine, just so long as you don't trade them," Bogle said. If you buy them, hold them for the Warren Buffett-endorsed term: forever.

[jim584672]

Seems like he is confusing the topic. He asserts trading is the great evil and then goes on to put down ETFs because they are easier to trade. He is missing the point. Conventional open ended funds are trade-able as well. The vehicle is not to blame.

Not everyone buys into Bogle's buy and hold forever mantra. ETFs grew as an answer to the disadvantages of conventional open ended and closed ended funds.

[NW-Bound]

While I have quite a bit of individual stocks, I use ETFs when I want to make small investments in some specific sectors and do not have enough committed to multiple companies to achieve diversification.

I prefer ETFs over MFs because I can occasionally take advantage of a low point during the trading days. Also, with ETFs I often squeeze some additional returns with writing covered call options, and this is not possible with MFs.

[NW-Bound]

Quote:

Originally Posted by jim584672 Seems like he is confusing the topic. He asserts trading is the great evil and then goes on to put down ETFs because they are easier to trade. He is missing the point. Conventional open ended funds are trade-able as well. The vehicle is not to blame.

Yes, blame the gun owners, not the guns.

[Options]

Quote:

Originally Posted by jim584672 Seems like he is confusing the topic....

Oh is he? Research has shown that a very high percentage of ETF's are traded, much more so than other investments (like mutual funds). What Bogle is "against" is using ETF's to mimic mutual funds and then trading them like stocks. FWIW, the financial industry was not at all happy with his assessment and came out with guns blazing (see Financial Times for the reaction).

Bogle, and too many others to list here, are against adding unnecessary complexity to a PF. Here's Rick Ferri on ETF's:

Quote:

"If you plan on making a single, large, lump-sum investment, then paying one commission to buy ETF shares makes sense. -- But if you are like most people and invest regular sums of money, you may actually spend more on commissions than you would save on ETF management fees and taxes." "It is prudent to dig deep into the indexing methodology so that you can make an informed investment decision about the ETFs you are interested in." "Rules for index construction have stretched from the simple and elegant to the complex and cumbersome." "The important matter for ETF investors is how the index is managed and the characteristics of the index."

Emphasis added

[audreyh1]

Quote:

Originally Posted by Lsbcal I've decided to go back to mutual funds from ETF's. The reasons: 1) Vanguard has changed its frequent trading policy to allow one back into a fund if more then 30 days have past after you've sold it. Was 60 days or you would have to use the mail. 2) One can go from ETF's to funds in the same day. Used to take 3 trading days. This is due to VG's new accounts which combine VG funds and ETF's. 3) Fund ER's are now the same as ETF ER's, e.g. .09% for VTV or VVIAX (large value fund). 4) I can better do a sell then buy at the day close without be concerned about bid-ask spreads and market moves between the sell and buy in ETF's. 5) I have to admit that the mutual fund feels a little safer but VG ETF's are probably just as safe.

Interesting! Some of the things my list.

Fidelity allows same day exchange of Fidelity funds, and only 1 day is needed for non-Fidelity funds.

Fidelity enforces short-term trading on mutual funds by charging a % fee if held for too short a period. The time period depends on the fund. Beyond that I think they mainly pay attention to round-trip trades - buy then sell - less than 30 days.

I confess I haven't completely given up. I do have likely one candidate - SCHD, that I may use when I get around to selling any of my two remaining dividend paying stocks that I have owned for decades. I'll use the limit order tips provided here to handle the bid/ask spread and let the brokerage break it up into pieces to foil those evil HFTs!