Small caps are getting crushed today

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FBN2014
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Small caps are getting crushed today

Post by FBN2014 » Fri Jul 27, 2018 12:30 pm

Looks like small cap correction may have started. Russell 2000 down almost 2% today.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

niceguy7376
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Re: Small caps are getting crushed today

Post by niceguy7376 » Fri Jul 27, 2018 12:33 pm

Been a member for 4 years.
Is 2% down a "getting crushed"? If so what do you define facebook yesterday?

When was the last time that your small caps went down more than 2 %?

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David Jay
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Re: Small caps are getting crushed today

Post by David Jay » Fri Jul 27, 2018 12:38 pm

FBN2014 wrote:
Fri Jul 27, 2018 12:30 pm
Looks like small cap correction may have started.
Based on one day?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

FBN2014
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Re: Small caps are getting crushed today

Post by FBN2014 » Fri Jul 27, 2018 12:46 pm

David Jay wrote:
Fri Jul 27, 2018 12:38 pm
FBN2014 wrote:
Fri Jul 27, 2018 12:30 pm
Looks like small cap correction may have started.
Based on one day?
Yeah, I'm probably a little over reacting.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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nisiprius
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Re: Small caps are getting crushed today

Post by nisiprius » Fri Jul 27, 2018 12:55 pm

What's the daily standard deviation for small-caps? It's about 1% for the S&P 500. A 2% move in small-caps doesn't seem like a lot.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

MichCPA
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Re: Small caps are getting crushed today

Post by MichCPA » Fri Jul 27, 2018 12:59 pm

FBN2014 wrote:
Fri Jul 27, 2018 12:30 pm
Looks like small cap correction may have started. Russell 2000 down almost 2% today.
I feel like we just went through multiple 4% S&P 500 drops less than six months ago. This is a Nothingburger.

limeyx
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Re: Small caps are getting crushed today

Post by limeyx » Fri Jul 27, 2018 1:03 pm

FBN2014 wrote:
Fri Jul 27, 2018 12:46 pm
David Jay wrote:
Fri Jul 27, 2018 12:38 pm
FBN2014 wrote:
Fri Jul 27, 2018 12:30 pm
Looks like small cap correction may have started.
Based on one day?
Yeah, I'm probably a little over reacting.
Yeah, VIOV back to the July 25th price!! Or maybe the 16th ? Or maybe July 3rd ???

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Kevin M
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Re: Small caps are getting crushed today

Post by Kevin M » Fri Jul 27, 2018 1:08 pm

I see Vanguard small-cap ETF (VB) down 1.80% at the lowest, now down 1.36%. BUT, it's still 20.69% above it's 52-week low, while VG total US market (VTI) is "only" 17.32% above its 52-week low (of course the exact numbers will be different by the time you read this).

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vineviz
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Re: Small caps are getting crushed today

Post by vineviz » Fri Jul 27, 2018 1:12 pm

nisiprius wrote:
Fri Jul 27, 2018 12:55 pm
A 2% move in small-caps doesn't seem like a lot.
It's not: daily drops of 2% or more have occurred on average about every three weeks for the past 380 months.

That's roughly about as often as gains of 2% or more more.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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nisiprius
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Re: Small caps are getting crushed today

Post by nisiprius » Fri Jul 27, 2018 1:15 pm

Independently confirming vineviz:

I just downloaded Yahoo!'s historical data for VB, the Vanguard Small-Cap ETF, and did a little spreadsheet work.

From January 31, 2004 through July 27, 2018, there have been 381 days in which the price moved 2% or more from close to close, out of a total of 3641 days. There have been 199 days in which it dropped 2% or more.

That means a 2% drop happened once every 18 trading days, on the average.

The daily standard deviation was 1.39%, so a 2% move isn't even a 1.5-sigma event.

Doing a little more work, if we ask "what sized drop happened about annually," the answer is that a drop of -5.2% or farther has happened 15 times in the last 14.49 years. In other words, one-day drops of over 5% have happened about once a year.
Last edited by nisiprius on Fri Jul 27, 2018 4:35 pm, edited 1 time in total.
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livesoft
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Re: Small caps are getting crushed today

Post by livesoft » Fri Jul 27, 2018 2:26 pm

I'm glad folks are filling in for me with the right responses. Thanks!

But a clarification: This thread applies to US small-caps only. Foreign small caps are UP today ... so far! :twisted:
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aristotelian
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Re: Small caps are getting crushed today

Post by aristotelian » Fri Jul 27, 2018 10:11 pm

Isn't the theory behind small cap premium that they are riskier and least correlated to the overall market? The occasional drop of 2% would be consistent with overall higher expected returns. If you could get higher expected returns with no risk, that would be great, but the market doesn't work that way.

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Re: Small caps are getting crushed today

Post by jebmke » Fri Jul 27, 2018 10:16 pm

aristotelian wrote:
Fri Jul 27, 2018 10:11 pm
Isn't the theory behind small cap premium that they are riskier and least correlated to the overall market? The occasional drop of 2% would be consistent with overall higher expected returns. If you could get higher expected returns with no risk, that would be great, but the market doesn't work that way.
S&P Small Cp 600 on YTD basis is way above total stock market. If you are weighted small, you will have tracking deviation from TSM. One of the characteristics that people often struggle with over the long haul and bail out of a tilt strategy.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Small caps are getting crushed today

Post by Random Walker » Fri Jul 27, 2018 10:47 pm

Today Russell 2K was down about 3X as much as S&P500. To me the question is how much of the difference represents more of the same market beta risk as S&P 500 and how much represents unique SmB risk. I have no clue. Not to hijack the thread, but international equity, all asset variance risk premium, Stone ridge reinsurance were up. One day is clearly meaningless, but small reminder of the importance of diversification across all dimensions possible.

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Re: Small caps are getting crushed today

Post by NYCwriter » Sat Jul 28, 2018 1:29 pm

I hold VB and Strategic Equity (mid). I expect VB to be somewhat more volatile.

I'd be more concerned about the run-up requiring re-balancing. There seems to have been a large "rotation" into small domestics. I don't "rotate" but inflows and outflows on every noise may end up increasing volatility down the line. :)

NYCwriter
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Re: Small caps are getting crushed today

Post by NYCwriter » Sat Jul 28, 2018 1:33 pm

FYI I just checked and Vanguard Small Cap (VB) just reached a 52wk high last week. It's up 22.24% in a year.

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nedsaid
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Re: Small caps are getting crushed today

Post by nedsaid » Sun Jul 29, 2018 12:19 pm

nisiprius wrote:
Fri Jul 27, 2018 1:15 pm
Independently confirming vineviz:

I just downloaded Yahoo!'s historical data for VB, the Vanguard Small-Cap ETF, and did a little spreadsheet work.

From January 31, 2004 through July 27, 2018, there have been 381 days in which the price moved 2% or more from close to close, out of a total of 3641 days. There have been 199 days in which it dropped 2% or more.

That means a 2% drop happened once every 18 trading days, on the average.

The daily standard deviation was 1.39%, so a 2% move isn't even a 1.5-sigma event.

Doing a little more work, if we ask "what sized drop happened about annually," the answer is that a drop of -5.2% or farther has happened 15 times in the last 14.49 years. In other words, one-day drops of over 5% have happened about once a year.
Stocks are volatile. It wouldn't be a shock to me that the Small-Cap section of the market is more volatile than Total Market. Thanks for the research, this shows that the market is behaving as normal.
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Smorgasbord
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Re: Small caps are getting crushed today

Post by Smorgasbord » Sun Jul 29, 2018 12:31 pm

nisiprius wrote:
Fri Jul 27, 2018 1:15 pm
Doing a little more work, if we ask "what sized drop happened about annually," the answer is that a drop of -5.2% or farther has happened 15 times in the last 14.49 years. In other words, one-day drops of over 5% have happened about once a year.
While I don't doubt the numbers, the conclusion may be a little misleading since the major drops are likely clustered into a few periods of high volatility. A better question might be "in how many months in the last 15 years was there are 5.2%+ drop in a single day?"...without looking at the data, my guess would be less than 5.

EDIT: Turns out I was wrong. Those 15 biggest drops occurred in seven separate months, but 9 out of the 15 occurred in a ~60 day window. If we look at 60-90 day windows, there were really only 3 periods in the last 15 years where those big losses occurred: Fall of 2008, Winter/early Spring 2009, and August of 2011.
Last edited by Smorgasbord on Sun Jul 29, 2018 12:46 pm, edited 1 time in total.

tesuzuki2002
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Re: Small caps are getting crushed today

Post by tesuzuki2002 » Sun Jul 29, 2018 12:40 pm

FBN2014 wrote:
Fri Jul 27, 2018 12:30 pm
Looks like small cap correction may have started. Russell 2000 down almost 2% today.
It is up 12% from 4 months ago....

livesoft
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Re: Small caps are getting crushed today

Post by livesoft » Sun Jul 29, 2018 1:22 pm

Smorgasbord wrote:
Sun Jul 29, 2018 12:31 pm
EDIT: Turns out I was wrong. Those 15 biggest drops occurred in seven separate months, but 9 out of the 15 occurred in a ~60 day window. If we look at 60-90 day windows, there were really only 3 periods in the last 15 years where those big losses occurred: Fall of 2008, Winter/early Spring 2009, and August of 2011.
I think you are on to something. :twisted: All those times turned out to be good times to buy equities.
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nisiprius
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Re: Small caps are getting crushed today

Post by nisiprius » Sun Jul 29, 2018 1:54 pm

Smorgasbord wrote:
Sun Jul 29, 2018 12:31 pm
nisiprius wrote:
Fri Jul 27, 2018 1:15 pm
Doing a little more work, if we ask "what sized drop happened about annually," the answer is that a drop of -5.2% or farther has happened 15 times in the last 14.49 years. In other words, one-day drops of over 5% have happened about once a year.
While I don't doubt the numbers, the conclusion may be a little misleading since the major drops are likely clustered into a few periods of high volatility. A better question might be "in how many months in the last 15 years was there are 5.2%+ drop in a single day?"...without looking at the data, my guess would be less than 5.

EDIT: Turns out I was wrong. Those 15 biggest drops occurred in seven separate months, but 9 out of the 15 occurred in a ~60 day window. If we look at 60-90 day windows, there were really only 3 periods in the last 15 years where those big losses occurred: Fall of 2008, Winter/early Spring 2009, and August of 2011.
You made a very good point, thanks for pointing that out. I should have looked more carefully. I would say that you were "more right than wrong."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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