Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-25-2015, 05:19 PM   #61
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
Quote:
Originally Posted by imoldernu View Post
Where are the trillions of dollars lost in the market going? Do they just disappear?
Yes, stock market values appear out of thin air, and can disappear into the same place.

On a typical day, only 1% of even a liquid stock like Apple changes hand. If that 1% of shares goes up $10 according to the price agreed to by buyers and sellers, the owners of the remaining 99% shares all feel richer though they take no part in the transaction. If the %1 of shares is changing hand at a price $10 lower, the other 99% of share owners all feel poorer.

Stock values are ethereal, to borrow from Alan Greenspan. I just hope they hold until I need to convert them to consumables like bread and steak.

PS. So why do I own stocks? Because everything else is also ethereal. Bonds, cash, paper money, gold, real estate. Nothing is permanent. We do not have eternal life either. So, it does not matter that much.
__________________

__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-25-2015, 05:58 PM   #62
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 1,656
Quote:
Originally Posted by ERD50 View Post
I wonder if we'll hear any stories from the other side? Anyone here get taken out with a Stop Loss order on the dip in any of the these ETFs?

I'll say it again, the exception to my 'never say never' guidepost:
NEVER set a stop loss order!
-ERD50
Sorry, not the other side. I remember looking yahoo finance early monday and notice some of my watch list was down 16% to 32% but the market was down 4% or so. It wasn't all of them. So what was different with these? PWV, PKW, DVY, SDY, SCHG... few others too? Finally dawned on me... liquidity (or lack there of). Stop loss order or market order at the beginning of the day. And there were probably a fair number of market orders that day ... just as bad as stop loss.

When I buy or sell.. I use a limit order, full stop. A market order is dangerous if there are not enough orders on the other side... I always use a limit to prevent paying way to much or selling for way too low. OK, I may miss it if the limit is too tight.... but I'm not getting 30% less than I thought it would be.
__________________

__________________
bingybear is offline   Reply With Quote
Old 08-25-2015, 06:12 PM   #63
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
I also was imagining all those folks getting the stop loss orders filled - way under the specified price. With no liquidity there is a big whoosh.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 08-25-2015, 06:18 PM   #64
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,905
I use limit orders too but that is one thing that kept me from getting a better deal on Monday. The stock I was trying to buy kept increasing past my limit buy order before I could hit the send button. I would then increase the limit buy by $0.20 and before I could click send it was up $0.30 more. I guess that is how a flash crash and flash recovery works.
__________________
Fermion is offline   Reply With Quote
Old 08-25-2015, 06:28 PM   #65
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
Quote:
Originally Posted by audreyh1 View Post
I also was imagining all those folks getting the stop loss orders filled - way under the specified price. With no liquidity there is a big whoosh.
One can use a stop-limit order, also called stop-limit-on-quote order, which is a stop order that turns into a limit order when the stop is triggered. Of course, it may not get executed, and if a seller is desperate to get out then that does not work for him.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 08-25-2015, 07:26 PM   #66
Thinks s/he gets paid by the post
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 4,616
Quote:
Originally Posted by imoldernu View Post
Where are the trillions of dollars lost in the market going? Do they just disappear?
Michael said:

Quote:
It's not a loss of money, it is a change in value. Just like when the price of a gallon of gasoline declines from $4 to $2.50, there is not any less gasoline.
...................................
Yes... an interesting philosophical question.

Does that apply to hedge funds? Two sides to every trade. Leveraged buys... long and short on a trade,

And for the gasoline... Less income for the dealers and producers, but the gain goes to the users, and eventually to other parts of the economy.

For the entire market... assuming it to be a US entity... a loss of trillions of dollars affects the international balance of wealth... not so obvious in today's' fixation with the Chinese economy, but on a worldwide basis, changes in national wealth.

If I burn a dollar bill, it is a loss of value to me, but as that dollar bill is backed by the debt of the Us... it becomes a reduction in that debt.

Based on that, I'd suggest that value doesn't disappear... it changes hands.
__________________
imoldernu is offline   Reply With Quote
Old 08-25-2015, 08:06 PM   #67
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,905
True enough. Those that had no position in a stock on Monday, bought and sold it the same day for a profit definitely have tangible cash now that came from somewhere.
__________________
Fermion is offline   Reply With Quote
Old 08-25-2015, 08:15 PM   #68
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
Some gains and losses really change hand between the buyers and sellers of the 1% of stock. But it's not the trillions that the media talks about, only a fraction of it. The rest is on paper.

The other 99% bystanders still have the same stocks they did, yet they feel poorer or richer based on the price of the transacted 1% of the shares. The trillions of dollars are computed on the total number of shares, including the 99% inactive ones.

Here's another example. You have 10 houses on a street, all similar. The estimated price of a home is $200K. One day, Mr. Smith sells his home to a newcomer into town. He gets $250K. Mr. Smith's 9 neighbors suddenly feel $50K richer, although they play no part in the transaction. One can say that the neighborhood collective net worth has gone up a total of $50K x 10 houses = $500K. Everybody is happy.

There's no money going to or from the neighbors. But if they feel rich, they may go out and get a new TV or go on vacation. Then, the next neighbor may want $270K when it is his turn to sell. The new buyer is willing to pay that price because the neighborhood looks so happy and friendly. And it goes up and up. Riches are created on paper, yet it is still the same house.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 08-25-2015, 08:17 PM   #69
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Quote:
Originally Posted by Fermion View Post
I use limit orders too but that is one thing that kept me from getting a better deal on Monday. The stock I was trying to buy kept increasing past my limit buy order before I could hit the send button. I would then increase the limit buy by $0.20 and before I could click send it was up $0.30 more. I guess that is how a flash crash and flash recovery works.
I set my bid almost a buck above the ask price to guarantee I got an execution (as much as "guarantees" operate during a flash crash). I ended up getting an execution between the bid and the ask shown when I submitted (a few dollars cheaper than my bid). I just wanted the thing at 20-25% off, didn't want to get greedy over a few bucks (x100 shares).
__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Old 08-26-2015, 02:15 PM   #70
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,211
Quote:
Originally Posted by NW-Bound View Post
There's no money going to or from the neighbors. But if they feel rich, they may go out and get a new TV or go on vacation. Then, the next neighbor may want $270K when it is his turn to sell. The new buyer is willing to pay that price because the neighborhood looks so happy and friendly. And it goes up and up. Riches are created on paper, yet it is still the same house.
They may even get the bank to reappraise their home and get a HELOC.

Then use that money to buy a second home in the neighborhood they know so well as an investment. Up and up it goes.

Until the day by accident of nature five other houses go on the market at once, and two of them have to sell because they need the cash for healthcare expenses. Discounts start to appear, confidence is lost, buyers wait for the price to stabilize. Flashcrash ..

down & down it goes .. and still it's the same house
__________________
Totoro is offline   Reply With Quote
Old 08-26-2015, 02:47 PM   #71
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Quote:
Originally Posted by FUEGO View Post
I set my bid almost a buck above the ask price to guarantee I got an execution (as much as "guarantees" operate during a flash crash).
I really wonder who was on the other side (sell side) of all those trades. Retail investors with stop loss? large fund managers? algorithmic traders? and if they were algorithms why didn't they identify the large discrepancy with the value of underlying assets or that the low price was likely spurious.

Anyway thanks for posting your trade experience. I've thought in the past about trying to capitalize on flash crashes but was too lazy to set anything up. I can live vicariously through your trading.
__________________
photoguy is offline   Reply With Quote
Old 08-26-2015, 04:41 PM   #72
Recycles dryer sheets
 
Join Date: May 2008
Location: Treasure Coast
Posts: 338
I bought a bunch of SDY and RSP when I saw trades being printed down 30%. I just tossed orders in somewhere between what I saw was bid/ask. Ended up getting filled at even better prices. Full service broker paid off.
__________________
45th Birthday is offline   Reply With Quote
Old 08-27-2015, 12:08 PM   #73
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Quote:
Originally Posted by photoguy View Post
I really wonder who was on the other side (sell side) of all those trades. Retail investors with stop loss? large fund managers? algorithmic traders? and if they were algorithms why didn't they identify the large discrepancy with the value of underlying assets or that the low price was likely spurious.

Anyway thanks for posting your trade experience. I've thought in the past about trying to capitalize on flash crashes but was too lazy to set anything up. I can live vicariously through your trading.
I'm pretty sure it was a mix of market participants. Retail investors with standing stop loss orders. HFT/algo traders that didn't have the logic quite right (like don't buy if the market price deviates more than x times the average price/NAV ratio).

One guy, a money manager who was interviewed for a WSJ article*, said he had some standing stop loss orders on IUSV (ishares large cap value core ETF) that triggered at $108, and then they sold much lower. That's probably my counterparty on my $101 trades. Why set the stop loss 20% below the previous closing value? Got me. Er, him I guess.

Stop loss triggers at $108 on the way down, and then it becomes a market order with no limit price. Once liquidity appeared, he probably got executed somewhere in the $88-102 range I assume (I saw bids that low during early trading). For IUSV, a sale price of $88 = 27-30% of what the NAV probably was. Ouchy.

I've contacted the guy to interview him for my Monday blog post on the mini flash crash. He said he'd be glad to help. It'll be interesting to see the experience from my counterparty's point of view.

* WSJ Article: Stock-Market Tumult Exposes Flaws in Modern Markets - WSJ - behind the paywall, so google the headline and click on the first story if you want to read for free.

Large fund managers might have been on the sell side, too. In my research on the previous flash crash, there was apparently a large fund manager possibly involved in causing it by placing an automated trade to slowly sell positions at a rate of 9% of trading volume in the previous minute (to avoid market impact costs by buying up the whole front of the book). Trading volumes blew up as HFTs smelled blood in the water and so the trade velocity from the real mutual fund seller picked up rapidly too. So it looked like someone was dumping $4 billion in sales even though it was supposed to be slow and measured (and therefore not very noteworthy). I wouldn't be surprised if some fund managers or institutional money just wanted to offload stuff quickly at market prices and didn't realize they were getting gouged with a 20-40% discount to NAV. "Sell it low NOW before it goes even lower".
__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Old 08-29-2015, 08:00 AM   #74
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Quote:
Originally Posted by FUEGO View Post
One guy, a money manager who was interviewed for a WSJ article*, said he had some standing stop loss orders on IUSV (ishares large cap value core ETF) that triggered at $108, and then they sold much lower.
Very curious that the manager would use a stop-loss order given that flash-crashes have been known for some time to be a risk.
__________________
photoguy is offline   Reply With Quote
Old 08-29-2015, 08:44 AM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
Quote:
Originally Posted by FUEGO View Post
Large fund managers might have been on the sell side, too. In my research on the previous flash crash, there was apparently a large fund manager possibly involved in causing it by placing an automated trade to slowly sell positions at a rate of 9% of trading volume in the previous minute (to avoid market impact costs by buying up the whole front of the book). Trading volumes blew up as HFTs smelled blood in the water and so the trade velocity from the real mutual fund seller picked up rapidly too. So it looked like someone was dumping $4 billion in sales even though it was supposed to be slow and measured (and therefore not very noteworthy). I wouldn't be surprised if some fund managers or institutional money just wanted to offload stuff quickly at market prices and didn't realize they were getting gouged with a 20-40% discount to NAV. "Sell it low NOW before it goes even lower".
Computers are not smarter than the guys who program them, usually a lot simpler and dumber. What a computer has is speed, and speed can compound a problem very fast, while a human can recognize something unusual and stop.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 08-29-2015, 09:01 AM   #76
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
Quote:
Originally Posted by photoguy View Post
Very curious that the manager would use a stop-loss order given that flash-crashes have been known for some time to be a risk.
Exactly! The 2010 flash crash was enough to tell me to NEVER put in a stop loss order. Not that I'd ever used one before, but I was never confident they would work as desired.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 08-29-2015, 09:28 AM   #77
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
When comparing traditional index MFs with ETFs for my own use, these rare but present price "excursions" with ETFs are one source for concern. It's not a dealbreaker, but it's not comforting to know that for 10-30 minutes my account balances would have declined by a large percent, much larger than the volatility of the underlying equities. It has always resolved itself before I even noticed (so far), but if this can occur maybe the market/"system" will surprise us in a different and more scary way at some point--or at least the exchanges might need to stop trading for awhile and untangle the mess. With a "traditional" MF, the end-of-day pricing is a direct reflection of the NAV of the equities inside. To me, the fact that they can't trade rapidly and aren't used by HFTs,/arbitrageurs is a feature, not a bug.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 08-29-2015, 09:40 AM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
It bothers me very much that some of the larger, more liquid ETFs were showing price declines of 40% while their underlying stocks were down only 10%.

If an ETF grossly deviates from the underlying basket of stocks, something is wrong with how they work. Clearly there are issues in volatile markets. Some people were apparently able to buy at those extreme discounts and keep the trade, while other people may have foolishly sold through stop losses or whatever.

You can buy CEFs if you want that extreme discount/premium "feature".
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 08-29-2015, 09:50 AM   #79
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
I own some VDC (Vanguard Consumer Discretionary EFT). That morning when I looked at my account, it showed to be down 30%. I watched like a deer in headlights not knowing what was going on. Had I been smarter than I am, I wouldve put in a huge buy order.
I did buy AAPL just about at the low though and sold for 13% profit a short time later though.
__________________
utrecht is offline   Reply With Quote
Old 08-29-2015, 10:21 PM   #80
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Quote:
Originally Posted by photoguy View Post
Very curious that the manager would use a stop-loss order given that flash-crashes have been known for some time to be a risk.
Yeah, well, some money managers think they are smarter than the market (and continue to be proven wrong repeatedly). I like being on the other side of that trade.
__________________

__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
iShares small-cap value ETF (IJS) Nords Stock Picking and Market Strategy 9 04-28-2010 08:52 PM
iShares Dow Jones Select Dividend Index (DVY) Hillbilly Stock Picking and Market Strategy 7 03-16-2008 12:30 PM
IJS vs. VBR (iShares small value & Vanguard small value) Fttaw FIRE and Money 1 01-22-2007 05:10 PM
Ishares TIP Feb Dividend CybrMike FIRE and Money 2 03-02-2006 03:23 PM
Barclay iShares sgeeeee FIRE and Money 4 02-09-2005 12:32 PM

 

 
All times are GMT -6. The time now is 01:48 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.