TLH risk - you have to be quick!

[Vivbet]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

[arcticpineapplecorp.]

that's nothing. are you not aware of 2010's famous Flash Crash:

The Dow Jones Industrial Average had its second biggest intraday point decline (from the opening) up to that point, plunging 998.5 points (about 9%), most within minutes, only to recover a large part of the loss.

[TheTimeLord]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Of course, prices could have gone the other way too and you could have made over $500 by being slower. What is your perspective going to be if you are down 1% after lunch today and you realize you could have bought cheaper. Prices move around, sometimes it is in your favor, sometimes not.

[jebmke]

Isn't the easy way around this to use mutual funds?

[Vivbet]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Of course, prices could have gone the other way too and you could have made over $500 by being slower. What is your perspective going to be if you are down 1% after lunch today and you realize you could have bought cheaper. Prices move around, sometimes it is in your favor, sometimes not.

My goal was to TLH, not to market time. So, I don’t really care what prices are after lunch. Also, i didn’t gain or lose $500 in this case, it was just an unexpected close call. Thanks for your input.

[climber2020]

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Mutual funds eliminate this risk. The transaction happens at the 4 PM closing price and there's nothing to think about.

[Marseille07]

Mutual funds eliminate this risk. The transaction happens at the 4 PM closing price and there's nothing to think about.

How do you buy and sell at the same time though? You can certainly execute one or the other at the 4 PM closing price, but can you execute both?

[Silverado]

Mutual funds eliminate this risk. The transaction happens at the 4 PM closing price and there's nothing to think about.

How do you buy and sell at the same time though? You can certainly execute one or the other at the 4 PM closing price, but can you execute both?

I put in for an exchange from fund one to fund two. Both get executed at the day’s closing price.

[Marseille07]

I put in for an exchange from fund one to fund two. Both get executed at the day’s closing price.

Gotcha, that should work and indeed only MF specific not ETF.

[the_wiki]

Isn't the easy way around this to use mutual funds?

Yes.

But also many mutual funds are less tax efficient to begin with. Missing a .5% price swing on an ETF would be better than paying tax on a 5% capital gains distribution. Make sure your mutual funds are tax efficient.

[secondopinion]

If one does not have a suitable tax-loss partner for an investment, it even gets riskier to try to tax loss harvest. Because you either have to sell the investment and wait for 31 days to buy, or you have to buy the replacement shares in addition and wait 31 days to sell the old shares. With the latter, I have seen 20%+ moves that turned a tax loss harvest into a tax gain harvest for the old shares (in which the rules for waiting 31 days do not apply).

[jebmke]

Mutual funds eliminate this risk. The transaction happens at the 4 PM closing price and there's nothing to think about.

How do you buy and sell at the same time though? You can certainly execute one or the other at the 4 PM closing price, but can you execute both?

I just do an exchange; it happens after 4

[jebmke]

Isn't the easy way around this to use mutual funds?

Yes.

But also many mutual funds are less tax efficient to begin with. Missing a .5% price swing on an ETF would be better than paying tax on a 5% capital gains distribution. Make sure your mutual funds are tax efficient.

True; but I don't invest in anything that distributes capital gains.

[livesoft]

One can buy first, then sell. It's not hard. That is, it is easy to do.

One can use a limit order as well.

The OP should not worry. They will probably be TLHing the replacement shares soon anyways.

[Vivbet]

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Mutual funds eliminate this risk. The transaction happens at the 4 PM closing price and there's nothing to think about.

Thank you jebmke and climber2020 for the helpful suggestion.

I can see how exchanging mutual funds is a safer and easier way to TLH. Unfortunately, most of my taxable holdings are in ETFs at a brokerage where I don’t really like the mutual funds. Also, it seems easier to find good TLH partners using ETFs than within one fund family, but perhaps it depends on what you are investing in.

I think going forward I may also not try to TLH in one large transaction - it’s just so much easier to do a “Sell All”!

Thank you again for your feedback!

[cchrissyy]

A batch of shares being bought for + or - 0.37% will have absolutely no impact on your long term success.

And the move is random. It will be up or down about half the time. You shouldn't try to catch it, and you shouldn't try to avoid it. The only important thing is you have a good plan and execute.

[Wiggums]

The first hour of trading is volatile.

[Vivbet]

The first hour of trading is volatile.

Thank you, Wiggums. It makes sense that it would be and I’ll keep that in mind.

[Wanderingwheelz]

The first hour of trading is volatile.

Thank you, Wiggums. It makes sense that it would be and I’ll keep that in mind.

An experienced financial advisor, the joke goes, works from 9:30 to 10:30, goes golfing, and returns at 3 to work until 4. Nothing unscheduled that’s of importance ever happens between 10:30 and 3.

[CuriousTacos]

You could use a "one triggers another" trade to execute the sell-then-buy at almost exactly the same time. That may require setting reasonable limits on both orders (I would set them to be "marketable", meaning just worse than current bid/ask prices so you avoid a flash crash scenario but otherwise they would proceed immediately) and leaving some small cash cushion to be sure the buy order executes. Once the dust settles, you can place a second buy order with whatever cash is left over, but any market movement on that small amount will be of little consequence to you.

[rkhusky]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Of course, prices could have gone the other way too and you could have made over $500 by being slower. What is your perspective going to be if you are down 1% after lunch today and you realize you could have bought cheaper. Prices move around, sometimes it is in your favor, sometimes not.

My goal was to TLH, not to market time. So, I don’t really care what prices are after lunch. Also, i didn’t gain or lose $500 in this case, it was just an unexpected close call. Thanks for your input.

If you buy/sell enough, you will see that sometimes you win and sometimes you lose and on average it cancels out. Rather than worrying about these random movements of the markets, it’s best to just consider the long term average, which is about +0.04%/day. That’s the real penalty for being out of the market for a period of time.

[Vivbet]

The first hour of trading is volatile.

Thank you, Wiggums. It makes sense that it would be and I’ll keep that in mind.

An experienced financial advisor, the joke goes, works from 9:30 to 10:30, goes golfing, and returns at 3 to work until 4. Nothing unscheduled that’s of importance ever happens between 10:30 and 3.

LOL, maybe I’ll TLH when the big guys are at lunch

[H-Town]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Perhaps you should wait until at least 5% loss, if not 15% or 20% loss before it's worth your time to do TLH.

[Vivbet]

You could use a "one triggers another" trade to execute the sell-then-buy at almost exactly the same time. That may require setting reasonable limits on both orders (I would set them to be "marketable", meaning just worse than current bid/ask prices so you avoid a flash crash scenario but otherwise they would proceed immediately) and leaving some small cash cushion to be sure the buy order executes. Once the dust settles, you can place a second buy order with whatever cash is left over, but any market movement on that small amount will be of little consequence to you.

This is very helpful CuriousTacos - I will look into that. Thanks!

[livesoft]

Since trades are free nowadays, there was really no need to sell ALL the shares in one single order and buy ALL the new shares in a subsequent order. I usually try to have some fun, so if I am buying say 10,000 shares, then I submit 10 limit orders of 1000 sh each at different limit prices. I can submit 10 limit orders for corresponding buys if I like. Since orders can be changed anytime before they execute I often change them. Now some people will whine, "But I don't want to sit at a computer all day entering orders and watching." My response, "I don't either and I don't have to." I usually don't care if an order is not executed and expires at the end of the day. I'm relaxed about the whole thing.

[feh]

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

Use mutual funds instead of ETFs.

[rkhusky]

The first hour of trading is volatile.

Thank you, Wiggums. It makes sense that it would be and I’ll keep that in mind.

An experienced financial advisor, the joke goes, works from 9:30 to 10:30, goes golfing, and returns at 3 to work until 4. Nothing unscheduled that’s of importance ever happens between 10:30 and 3.

LOL, maybe I’ll TLH when the big guys are at lunch

These days the big guys are using AI to watch for favorable market signals, so they are never not watching.

[wellboy99]

Have spare money ready. Set up two market-on-close orders. One to sell and the other to buy. This will mimic MF exchange.

[wellboy99]

You could do MF exchange also, but MF TLH partners are not as wide as ETFS.

[passive101]

I use a robo and they do the TLH almost instantly when they do the sales and buy

[rkhusky]

If the market had randomly gone the other direction, I suppose the title would have been “TLH bonus - you have to be slow!”.

[Vivbet]

Thanks again everyone for the suggestions.

I had another opportunity to TLH and used the “One Triggers the Other” type of trade and it worked out perfectly!

[muffins14]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

The best way is to just stop caring about such things. How much, in dollars terms, would the 0.37% have cost you relative to the amount saved from harvesting the loss?

[Vivbet]

This morning I decided to TLH a position. After purchasing the TLH partner, I refreshed my screen to see the new position and noticed that it was ALREADY up .37%! This means, that if I had been even a few seconds slower, I would have “lost” that upside (over $500 in this case) for that time I was “out of the market” - an unexpected close call!

I am fairly new to the TLH process, and had not really considered the few seconds out of the market as being a risk. I have not read much about it either, so wanted to bring it to the board’s attention.

It may be a rare occurrence, but it can happen!

If any experienced TLH’ers have suggestions on how to mitigate the risk, I’d be interested in hearing your ideas. Thanks!

The best way is to just stop caring about such things. How much, in dollars terms, would the 0.37% have cost you relative to the amount saved from harvesting the loss?

Well, I just confirmed in the post above yours that this can easily be done without losing any money, but thanks for chiming in.

[SnowBog]

I'd assume other brokerages offer similar, but I use "conditional" trades at Fidelity, specifically a "one-triggers-the-other" (OTO).

In fact, I usually have the set up far in advance...

For example, let's say I have a lot of 100 shares at $X price. My "threshold" for doing a TLH is a loss of $Y. So I can figure out my TLH "sell" price right away, which means I can also figure out the % drop to trigger the TLH.

Assuming the TLH partner follows a similar pattern, I can apply the same % loss to it's price - and have my target TLH "buy" price. With a buy price, and the estimated value of my sell, I can figure out how many shares to buy. I usually raise the buy price slightly, just incase things don't stay aligned, so something trades quickly.

Then I can create my OTO trade:

• Stop Limit on 100 shares of initial position at "sell" price
• Use proceeds on limit order for Z shares of TLH partner at "buy" price

Usually both executive at nearly the same time (assuming I left enough buffer that the buy can execute). This reduces the risk of being out of the market. And more importantly for me, I can set this up after hours and not have to watch the markets during the day - as in usually busy with work.

This isn't fully automatic - as it can only be done with whole shares (not fractional or dollar trades), and leaving a buffer on the "buy" side means I might have a few dollars waiting for manual execution. But it's close enough for me.

[Vivbet]

Thank you SnowBog for the detailed explanation. Right now I’m able to execute the OTO order during market hours, but if I’m ever unable to do so, I will keep your strategy in mind!

[Gennaro Dillinger]

I do TLH and then reinvest right away. I can't worry about the very small amount of time in between - likely to help as much as hurt.