How do I optimize stock transactions ?

[Dry Socks]

Maybe this is a stupid question...

Let's say I'm convinced that interest rates are going up and want to shorten my duration. Let's also say I currently own AGG and want to switch it to SHY.

So, I go to my handy dandy web browser, punch in my Broker, then... what....
Do I just sell AGG at the market then buy SHY at the market ?
Do I put in a limit order to sell AGG a little above it's current level, wait for it to sell, then put in a limit order for SHY a little below market ?

Usually I just execute everything as a market order (I only trade in highly liquid stocks).

I've read lots of books talking about allocation, diversification, etc. But, I haven't seen anything that gets into the mechanics of the best way to execute trades.

The specific stocks and reason for the trade are just an example. The question is about the method used to switch from one stock to another.

Comments and suggestions greatly appreciated !

 

[wabmester]

If a stock has a small bid/ask spread, I usually just do a market order. But some of these low-volume stocks can have wide spreads, so I'll put in a limit order at whatever price I want to pay.

You can probably get away with playing little games like putting your limit 0.01 over the current bid, but saving a few pennies on the spread isn't usually a big deal. It can be fun to watch the execution when you're responsible for a big chunk of the volume, though.

Personally, I would not use an ETF for bonds unless you know you're getting a big discount from NAV. In your examples, you can check ishares.com for the delta from NAV.

 

[LOL!]

I have found that it doesn't really matter how I do it.  I always lose money.  For example, in the AGG vs SHY, if I sold AGG and bought SHY, then AGG would keep going up while SHY would go down a bit.  In other words it would have been better to just keep AGG.

If I sell something I track it for a year or so to see if I made the right decision.  I want to see that I made more money by selling and holding cash or buying something else.  My tracking of this shows that I don't always make the right decision.  So I suspect you will not either.  Therefore, it doesn't really matter how you do it: market order, limit order, average in, average out, etc.

Here is another specific.  Yesterday, I sold 1000 shares of TGT.  I wanted to sell at a gain, so I needed to sell above 55.11.  I entered a market limit order at 55.25 which was slightly above the price it was trading at.  Since it didn't sell in about 30 seconds and the price seemed to be dropping, 55.24, 55.21, 55.19 ... I switched the limit order to a market order and sold at 55.19.  The difference of the extra $60 that I would have gotten with the limit order is nothing considering that TGT closed at 54.64.  But if I had not panicked, I would have gotten the 55.25 within 30 minutes anyways.

Of course, past experience tells me that TGT will probably take off next week since I sold my shares.

Anyways, I think at this level, it doesn't matter what you do.   Why don't you experiment over the next few years and figure out what you like to do.

 

[brewer12345]

AGG and SHY are not that volatile, so it shoudn't make thast much of a difference. What I usually do with ETFs is put in a limit order for a couple of pennies beyond the bid/ask (depending on whether you are selling or buying) just to make sure I don't get some wacky execution at a very different price than I was expecting.

Just a thought: Why bother with SHY? A half-way decent money market fund will yield about the same and have lower risk.

 

[Dry Socks]

Thanks for the replies!

I always feel like I've left money on the table after making a trade. It seems like the sell always happens near the low and the buy near the high