Gyroscopic Investing

Anyone see this:



Vanguard total stock market ETF went from 60 to 40 and rebounded within an hour? Some people bought in at 40 and it went back up! What the heck happened? A computer trading system go wrong? Anyone buying in on that trade at 40 made a killing.

Word is a trader error.

Pretty wild.

Heads will roll for sure if it was. Scary how a trader error could cause that to happen though. Wish I was logged into my broker to buy in with some play money. A lot of people today made some easy money.

craigr wrote: Heads will roll for sure if it was. Scary how a trader error could cause that to happen though. Wish I was logged into my broker to buy in with some play money. A lot of people today made some easy money.

Think of all the stops that were triggered.

That's going to be a bunch of VERY unhappy people.

MediumTex wrote:

craigr wrote: Heads will roll for sure if it was. Scary how a trader error could cause that to happen though. Wish I was logged into my broker to buy in with some play money. A lot of people today made some easy money.

Think of all the stops that were triggered.

That's going to be a bunch of VERY unhappy people.

I don't know. If I'd gotten in at 40 I'd have been pretty happy! 

Well looks like some of the trades are going to be cancelled:

http://www.reuters.com/article/idUSN061 ... arketsNews

NEW YORK, May 6 (Reuters) - Nasdaq Operations (NDAQ.O) said it will cancel all trades executed between 2:40 p.m. to 3 p.m. showing a rise or fall of more than 60 percent from the last trade in that security at 2:40 p.m or immediately prior. Nasdaq said the stocks affected and break points will be disseminated soon.

Probably the fairest thing to do as it looks like an error that just cascaded outwards.

Weeee. I was stopped out of all of my equity positions early in the day before the knife down. Very strange to see the Dow completely keel over    on the chart.

When this week started my equity trading systems were long (with stops). But since things looked hairy I double checked all of the stops. I'm glad I didn't have a bunch of old stops sitting way down in that knife edge, I'm sure that was painful for many people to be sold out minutes before the snap back.

I also thought of MT's words along the lines of "when you're worried, re-balance". In my case that meant topping up on TLT a couple days ago which definitely paid off today.

Stops get me nervous about being whipsawed. Did you miss an unintentional haircut?

I think it's far more likely that a bunch of people panicked, sold out at 40, and the buyers then sold as people bought back in at 45, 50, 55, and finally 60.

While this is interesting, I didn't know about it until long after it was over.  I just don't watch the stock market very fastidiously.

But given that computers make most trades, I'm betting someone programmed their robot incorrectly.

craigr wrote: Stops get me nervous about being whipsawed. Did you miss an unintentional haircut?

I'm not sure about your second sentence but yes stops don't make you money in general because you usually sell at the worst possible price. I won't know if I will be 'happy' about selling out at the stops yesterday until I see what the market does next.

From my research adding stops generally lowers my cagr, but wide stops aren't a big hit. The reason to use them is to cut off some tail risk, and to take emotion out of exit decisions.

macclary wrote:
I'm sure that was painful for many people to be sold out minutes before the snap back.

My wife's partner was relieved of his holdings in Apple Computer last week. When I think of investing in individual equities and market timing, I am reminded of this gambling quote:

"Listen, here's the thing. If you can't spot the sucker in the first half hour at the table, then you ARE the sucker."

Mike McDermott (Rounders)