2020 COVID Crash Lessons

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
mrspock
Posts: 1076
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

2020 COVID Crash Lessons

Post by mrspock » Wed Mar 18, 2020 9:23 pm

What have you learned so far from this? Here's my learnings so far:

Lesson #1: When possible, buy mutual fund based bond (Edit: all?) funds not ETFs.
Rationale: Bond ETFS NAV vs. Price - This is something I had to re-learn, I read about this and saw this in the 2008 data, but my brain had nicely filed this tidbit away. Instead I was expecting my bonds to nicely go higher during a correction (as yields would fall), however my ETF based bonds have really struggled due to some (looking at you VTEB) having breath taking spreads in the NAV vs share price. Mututal Funds on the other hand are priced daily based on the NAV, leading to no such spread.

Lesson #2: When TLH'ing, execute simultaneous exchanges of the two funds involved in the TLH. This can be accomplished via two simultaneous orders in Schwab ("Go to classic Stocks & ETFs Trade Ticket" -> "Add an Order"), or via the "Exchange Fund" in Fidelity.
Rationale: This was a really expensive lesson. There was so much volatility going on, I lost $5k in the two minutes it took me to execute the second order as the market started moving up again like a rocket. In calmer times, with less volatility I could get away with this, with high volatility it's too dangerous.

Lesson #3: When TLH'ing, never use a "market" order when buying or selling a large quantity of shares. Always use limit orders with the limit a reasonable buffer from the current big/ask range.
Rationale: When I TLH'd one of my 7 figure positions, I used a limit order on the sell side, and things went well. On the buy side, I got lazy and fired off a market order on VOO, thinking that the massive volume would insulate me from price swings. Wow, I was wrong... I got dinged for a solid $1.50 from the bid/ask spread costing me thousands.

Lesson #4: Use a spreadsheet to figure out when your rebalance bands are "hitting".
Rationale: Rebalancing when you are adding new money in a calm market is pretty trivial, however rebalance bands the math is just complex enough that you probably want a spreadsheet to ensure you don't make mistakes. It's also complicated by the fact that in times of financial stress, bond funds are far more volatile than normal, making static calculations (e.g. band hits when S&P hits X) out-dated within days.

Small'ish mistakes, which don't matter in the long run, but [rats] .... that's $6-7k I'll probably never see again :/ . Figured I'd share some expensive lessons so others don't make the same mistakes.

[Edit by mod oldcomputerguy]
Last edited by mrspock on Wed Mar 18, 2020 11:36 pm, edited 2 times in total.

ionball
Posts: 220
Joined: Wed Jan 31, 2018 12:17 pm

Re: 2020 COVID Crash Lessons

Post by ionball » Wed Mar 18, 2020 9:27 pm

I have learned that a well constructed asset allocation makes life easier.

MotoTrojan
Posts: 9945
Joined: Wed Feb 01, 2017 8:39 pm

Re: 2020 COVID Crash Lessons

Post by MotoTrojan » Wed Mar 18, 2020 9:33 pm

Surprised to hear of your market order troubles with VOO, although I haven't made an order in the last week or so when spreads started taking off. I've been getting good prices on MUCH less liquid holdings.

linuxizer
Posts: 1581
Joined: Wed Jan 02, 2008 7:55 am

Re: 2020 COVID Crash Lessons

Post by linuxizer » Wed Mar 18, 2020 9:35 pm

Simple and steady. Set as much as possible (eg invest with each paycheck) on autopilot, then don't look!

User avatar
dmcmahon
Posts: 2323
Joined: Fri Mar 21, 2008 10:29 pm

Re: 2020 COVID Crash Lessons

Post by dmcmahon » Wed Mar 18, 2020 9:35 pm

Lesson #5: always have a month’s worth of toilet paper and canned food on hand.

User avatar
Topic Author
mrspock
Posts: 1076
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: 2020 COVID Crash Lessons

Post by mrspock » Wed Mar 18, 2020 9:37 pm

MotoTrojan wrote:
Wed Mar 18, 2020 9:33 pm
Surprised to hear of your market order troubles with VOO, although I haven't made an order in the last week or so when spreads started taking off. I've been getting good prices on MUCH less liquid holdings.
Almost any other time I've done it, it wasn't a problem. I could hardly believe my eyes....when I x-checked the order status with the current price of VOO. That said, I was buying a 7 figure amount of VOO on a super volatile day, so I should have known better. Kinda ruined my day, but lesson learned.

ionball
Posts: 220
Joined: Wed Jan 31, 2018 12:17 pm

Re: 2020 COVID Crash Lessons

Post by ionball » Wed Mar 18, 2020 9:38 pm

dmcmahon wrote:
Wed Mar 18, 2020 9:35 pm
Lesson #5: always have a month’s worth of toilet paper and canned food on hand.
+1

bling
Posts: 472
Joined: Sat Jan 21, 2012 12:49 pm

Re: 2020 COVID Crash Lessons

Post by bling » Wed Mar 18, 2020 9:39 pm

i don't get #3, it could cost you money by being out of the market when it moves against you. in the past, i always used limit orders, until i realized that 100% of the time i wanted it to be filled immediately, and i would keep adjusting the price until it did. whether i need to adjust up or down is luck. don't most brokers have to give you the best execution price?

User avatar
pokebowl
Posts: 361
Joined: Sat Dec 17, 2016 7:22 pm
Location: The Orion Spur of the Milky Way galaxy.

Re: 2020 COVID Crash Lessons

Post by pokebowl » Wed Mar 18, 2020 9:40 pm

dmcmahon wrote:
Wed Mar 18, 2020 9:35 pm
Lesson #5: always have a month’s worth of toilet paper and canned food on hand.
The way people in my area are still lining up early daily to buy up all the restocked toilet paper tells me even a month may not be enough. If this keeps up you may see me holding a cardboard sign on a street corner, "Will give financial advice for toilet paper". :D

MotoTrojan
Posts: 9945
Joined: Wed Feb 01, 2017 8:39 pm

Re: 2020 COVID Crash Lessons

Post by MotoTrojan » Wed Mar 18, 2020 9:40 pm

mrspock wrote:
Wed Mar 18, 2020 9:37 pm
MotoTrojan wrote:
Wed Mar 18, 2020 9:33 pm
Surprised to hear of your market order troubles with VOO, although I haven't made an order in the last week or so when spreads started taking off. I've been getting good prices on MUCH less liquid holdings.
Almost any other time I've done it, it wasn't a problem. I could hardly believe my eyes....when I x-checked the order status with the current price of VOO. That said, I was buying a 7 figure amount of VOO on a super volatile day, so I should have known better. Kinda ruined my day, but lesson learned.
To be clear, is it possible the market had just moved $1.50 before you clicked go (so your quoted bid/ask prices were wrong)? Or did you actually move $1.50 away from the ask?

User avatar
SimpleGift
Posts: 3869
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: 2020 COVID Crash Lessons

Post by SimpleGift » Wed Mar 18, 2020 9:41 pm

One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.

Ocean77
Posts: 216
Joined: Wed Oct 23, 2019 3:20 pm

Re: 2020 COVID Crash Lessons

Post by Ocean77 » Wed Mar 18, 2020 9:43 pm

What is a TLH?

User avatar
Fat-Tailed Contagion
Posts: 988
Joined: Fri Mar 02, 2007 11:49 am

Re: 2020 COVID Crash Lessons

Post by Fat-Tailed Contagion » Wed Mar 18, 2020 9:45 pm

1/ Slice & Dice Bond AA to include 25% LT US Treasury Fund

2/ Use strict rebalancing trigger bands to buy and sell based upon IPS AA

THose are the 2 big lessons I have learned so far.
Last edited by Fat-Tailed Contagion on Thu Mar 19, 2020 10:41 am, edited 1 time in total.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

caklim00
Posts: 2196
Joined: Mon May 26, 2008 10:09 am

Re: 2020 COVID Crash Lessons

Post by caklim00 » Wed Mar 18, 2020 9:49 pm

MotoTrojan wrote:
Wed Mar 18, 2020 9:40 pm
mrspock wrote:
Wed Mar 18, 2020 9:37 pm
MotoTrojan wrote:
Wed Mar 18, 2020 9:33 pm
Surprised to hear of your market order troubles with VOO, although I haven't made an order in the last week or so when spreads started taking off. I've been getting good prices on MUCH less liquid holdings.
Almost any other time I've done it, it wasn't a problem. I could hardly believe my eyes....when I x-checked the order status with the current price of VOO. That said, I was buying a 7 figure amount of VOO on a super volatile day, so I should have known better. Kinda ruined my day, but lesson learned.
To be clear, is it possible the market had just moved $1.50 before you clicked go (so your quoted bid/ask prices were wrong)? Or did you actually move $1.50 away from the ask?
I'm really surprissed about that as well. I had much better market executions on all the SCV funds I either sold or bought. Market executions seemed to produce better pricing than limit orders. Either it was the market maker or I sold my AVUV directly to MotoTrojan :)

User avatar
WoodSpinner
Posts: 1493
Joined: Mon Feb 27, 2017 1:15 pm

Re: 2020 COVID Crash Lessons

Post by WoodSpinner » Wed Mar 18, 2020 9:49 pm

OP,

My big lesson is that My IPS is still not clear enough on when to rebalance. See viewtopic.php?t=308117 for details. I certainly thought I had this nailed down but not so much in this market.

Also, there have been many threads on the pricing of ETFs vs the NAV of MF. In short, it’s more likely the MF is priced incorrectly (especially bond funds) and the ETF is a more accurate price.

WoodSpinner

CoastalWinds
Posts: 1063
Joined: Sat Apr 06, 2019 8:28 pm

Re: 2020 COVID Crash Lessons

Post by CoastalWinds » Wed Mar 18, 2020 9:50 pm

When near/in retirement, go more conservative on AA (no more than 40/60) and have a healthy chunk of the FI slice in CDs and cash equivalents.

User avatar
Bluce
Posts: 962
Joined: Tue May 10, 2011 11:01 pm
Location: Finger Lakes, NYS

Re: 2020 COVID Crash Lessons

Post by Bluce » Wed Mar 18, 2020 9:52 pm

I've not learned anything because I haven't done anything -- same as the last bear. I don't think I did much in 2000 either but I don't remember.

I did nothing in 2008 cuz it was too scary to even look at my PF or to even open my monthly statements (I had about a 65/35 AA then). Although I haven't taken too big of a hit currently with a 30/70 AA, I haven't checked it in about a week and won't again until recovery is under way. I will be 70 this summer.

I will check my low point then. There's nothing I can, or want, to do at this time so there's no point looking at it now.

I got my monthly news articles from Schwab today. Check this chart out. It shows three hypothetical investors with different styles, and what they ended up with after 40 years.

Guess which style of investing came out on top? :beer
"There are no new ideas, only forgotten ones." -- Amity Shlaes

jb1
Posts: 446
Joined: Sun Nov 27, 2016 8:33 am
Location: NC

Re: 2020 COVID Crash Lessons

Post by jb1 » Wed Mar 18, 2020 9:55 pm

Ocean77 wrote:
Wed Mar 18, 2020 9:43 pm
What is a TLH?
Tax Loss Harvesting

mrwalken
Posts: 175
Joined: Sat Oct 08, 2011 5:51 pm

Re: 2020 COVID Crash Lessons

Post by mrwalken » Wed Mar 18, 2020 10:14 pm

I interpret your 1-3 as all basically saying Buy Mutual Funds, Not ETFs. I have had similar painful experiences with ETFs here. The crash has actually set me up to dump all ETFs and fully switch to funds since I can sell so much at a loss. However, I am terrified about how much more money I will lose just trying to navigate the ETF trading.

My main lessons so far:
1. Mutual funds are great, ETFs are an abomination for passive investors.
2. Cash is King. Will always be a solid chunk of my portfolio.

User avatar
bligh
Posts: 1288
Joined: Wed Jul 27, 2016 9:13 pm

Re: 2020 COVID Crash Lessons

Post by bligh » Wed Mar 18, 2020 10:18 pm

ionball wrote:
Wed Mar 18, 2020 9:38 pm
dmcmahon wrote:
Wed Mar 18, 2020 9:35 pm
Lesson #5: always have a month’s worth of toilet paper and canned food on hand.
+1
I think I will hold strategic toilet paper reserves. Then when disaster strikes I will sit outside my local costco with supplies and help provide liquidity to the market, at a small premium of course.

squirrel1963
Posts: 24
Joined: Wed Jun 21, 2017 10:12 am

Re: 2020 COVID Crash Lessons

Post by squirrel1963 » Wed Mar 18, 2020 10:29 pm

SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Mind clarifying a bit more what you mean but "Muni bond holders have had this lesson reinforced" ? Are you referring to people who sell muni bonds during this crash?

My "cash reserve" is in treasury bills and it's for 2 years.

I have a fairly large chunk of muni bonds as I don't have enough space in tax deferred accounts: MUB https://www.ishares.com/us/products/239 ... i-bond-etf . For this I'm buy&hold and only care about dividends. In fact with MUB selling below NAV, I've actually bought some more at 2.5% discount, and I'm thinking to buy morefor as long as it's at deep discount (5% today).
At some point once I'm retired I'll have to start selling them, but hopefully there will not be such a huge spread against the NAV in 3-4 years.

I hope I'm not missing something. Thoughts :?:

User avatar
Cubicle
Posts: 906
Joined: Sun Sep 22, 2019 1:43 am

Re: 2020 COVID Crash Lessons

Post by Cubicle » Wed Mar 18, 2020 10:31 pm

Ocean77 wrote:
Wed Mar 18, 2020 9:43 pm
What is a TLH?
Tax loss harvesting

https://www.bogleheads.org/wiki/Tax_loss_harvesting
__________________________________

Don't waste brain power even thinking about swing/day trading. You don't have the time to pay attention because you work while the market is open. And your "strategy" is proved wrong in hindsight. Every single time.

... Every single time.
Last edited by Cubicle on Wed Mar 18, 2020 10:33 pm, edited 1 time in total.
"Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

User avatar
Nestegg_User
Posts: 1510
Joined: Wed Aug 05, 2009 1:26 pm

Re: 2020 COVID Crash Lessons

Post by Nestegg_User » Wed Mar 18, 2020 10:31 pm

CoastalWinds wrote:
Wed Mar 18, 2020 9:50 pm
When near/in retirement, go more conservative on AA (no more than 40/60) and have a healthy chunk of the FI slice in CDs and cash equivalents.
another rule "don't be afraid of taking profits"

and, as always, determine an allocation that you can keep and is within your risk tolerance

I did some "tax gain harvesting" in November, and was at 42% equities (versus 45% per IPS).... I'm retired (with pension). {I was trimming some areas and wanted to keep within allocation after some run up (I'd done TLH year prior). Sometimes you have to take some profit off the table when rebalancing.... and clearly now it's better to pay the taxes on the gains rather than miss the money when the market goes south}

User avatar
9-5 Suited
Posts: 565
Joined: Thu Jun 23, 2016 12:14 pm

Re: 2020 COVID Crash Lessons

Post by 9-5 Suited » Wed Mar 18, 2020 10:41 pm

Someone said it on another thread, but another lesson appears to be that risk tolerance questionnaires are fairly useless tools. They don’t get deep down into the viscera like a real slide down the mountain.

rascott
Posts: 2112
Joined: Wed Apr 15, 2015 10:53 am

Re: 2020 COVID Crash Lessons

Post by rascott » Wed Mar 18, 2020 10:44 pm

Don't own equities when they are under their 200 day SMA.

The end.

User avatar
willthrill81
Posts: 19154
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: 2020 COVID Crash Lessons

Post by willthrill81 » Wed Mar 18, 2020 10:45 pm

SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

CoastalWinds
Posts: 1063
Joined: Sat Apr 06, 2019 8:28 pm

Re: 2020 COVID Crash Lessons

Post by CoastalWinds » Wed Mar 18, 2020 10:48 pm

willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.

User avatar
willthrill81
Posts: 19154
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: 2020 COVID Crash Lessons

Post by willthrill81 » Wed Mar 18, 2020 10:55 pm

CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
Bluce
Posts: 962
Joined: Tue May 10, 2011 11:01 pm
Location: Finger Lakes, NYS

Re: 2020 COVID Crash Lessons

Post by Bluce » Wed Mar 18, 2020 10:58 pm

Because I never sell (or buy) anything during market gyrations, ETFs work fine for me.
"There are no new ideas, only forgotten ones." -- Amity Shlaes

Thesaints
Posts: 3455
Joined: Tue Jun 20, 2017 12:25 am

Re: 2020 COVID Crash Lessons

Post by Thesaints » Wed Mar 18, 2020 10:59 pm

mrspock wrote:
Wed Mar 18, 2020 9:23 pm
What have you learned so far from this? Here's my learnings so far:

Lesson #1: When possible, buy mutual fund based bond funds not ETFs.
What do you care, unless you are trading ? For a long term investor it would be perfectly acceptable if his fund were priced once a week. If it were also priced every millisecond in the meantime, what difference does it make ?
Lesson #2: When TLH'ing, execute simultaneous exchanges of the two funds involved in the TLH.
If you hold funds simply send the order on the same day, even if hours apart. Maybe this is the substantial difference with ETF.
Lesson #3: When TLH'ing, never use a "market" order when buying or selling a large quantity of shares. Always use limit orders with the limit a reasonable buffer from the current big/ask range.
Mmmh... What happens if you trigger a limit with one and not with the other ?
Lesson #4: Use a spreadsheet to figure out when your rebalance bands are "hitting".
Whoever has problems doing arithmetics because "the market is choppy" has no business holding ETF to begin with.

squirrel1963
Posts: 24
Joined: Wed Jun 21, 2017 10:12 am

Re: 2020 COVID Crash Lessons

Post by squirrel1963 » Wed Mar 18, 2020 11:15 pm

mrwalken wrote:
Wed Mar 18, 2020 10:14 pm
I interpret your 1-3 as all basically saying Buy Mutual Funds, Not ETFs. I have had similar painful experiences with ETFs here. The crash has actually set me up to dump all ETFs and fully switch to funds since I can sell so much at a loss. However, I am terrified about how much more money I will lose just trying to navigate the ETF trading.

My main lessons so far:
1. Mutual funds are great, ETFs are an abomination for passive investors.
2. Cash is King. Will always be a solid chunk of my portfolio.
My understanding of Jack Bogle's main objection about ETFs was not so much the concept but the fact that pepople trade them as if they were stocks and that it has spurred a whole cottage industry of all kinds of ETFs, like toilet-paper-index ETF. At least this is what he said during an interview. I only stick with very large heavily traded index ETFs like MUB and VTI. The market price of these ETFs rarely deviate by more than 20 bps from NAV -- except of course during a market crash.
I'm buy&hold and when doing TLH, I would not sell is the market price is more than 10-20 bps below NAV, and of course I'm very happy to buy if the market price is at a deep discount from NAV, like MUB is these days (2.5% last week, 5% today).
And the reason I use ETFs in taxable accounts is because they are marginally more tax efficient than funds.
I certainly would not sell during market turmoil.

Provided that I keep following the above rules, do you see something wrong?

On #2 I completely agree. My "cash" though is a 3 year ladder of treasury bills maturing monthly.

Jim180
Posts: 433
Joined: Wed Jun 26, 2013 9:47 pm

Re: 2020 COVID Crash Lessons

Post by Jim180 » Wed Mar 18, 2020 11:18 pm

I guess the lesson is when a virus begins to spread take it more seriously as an investor. Prior to this markets have basically shrugged off viruses.

CoastalWinds
Posts: 1063
Joined: Sat Apr 06, 2019 8:28 pm

Re: 2020 COVID Crash Lessons

Post by CoastalWinds » Wed Mar 18, 2020 11:24 pm

willthrill81 wrote:
Wed Mar 18, 2020 10:55 pm
CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
I follow in the abstract, but is their a quantitative metric of liquidity risk posted for bond fund profiles?

fatFIRE
Posts: 346
Joined: Sat Feb 15, 2020 10:44 pm

Re: 2020 COVID Crash Lessons

Post by fatFIRE » Wed Mar 18, 2020 11:25 pm

I'll add another observation/lesson.

It does seem that ETFs are more advantageous in times like this because I can place a limit order for opportunistic rebalancing when stuff drops below a certain threshold. Also given the volatility during the day itself makes it quite difficult to estimate losses for TLH purposes using mutual funds.

Does anyone agree with me on this?

User avatar
Topic Author
mrspock
Posts: 1076
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: 2020 COVID Crash Lessons

Post by mrspock » Wed Mar 18, 2020 11:26 pm

MotoTrojan wrote:
Wed Mar 18, 2020 9:40 pm
mrspock wrote:
Wed Mar 18, 2020 9:37 pm
MotoTrojan wrote:
Wed Mar 18, 2020 9:33 pm
Surprised to hear of your market order troubles with VOO, although I haven't made an order in the last week or so when spreads started taking off. I've been getting good prices on MUCH less liquid holdings.
Almost any other time I've done it, it wasn't a problem. I could hardly believe my eyes....when I x-checked the order status with the current price of VOO. That said, I was buying a 7 figure amount of VOO on a super volatile day, so I should have known better. Kinda ruined my day, but lesson learned.
To be clear, is it possible the market had just moved $1.50 before you clicked go (so your quoted bid/ask prices were wrong)? Or did you actually move $1.50 away from the ask?
I was refreshing over and over so I wouldn’t over buy, as I didn’t want to go negative in my account. I actually had to drop my share count 3 times. It likely did move this quick against me, and thus the lesson — use a limit order as if it’s yo-yo ‘ing around... I want to get the “yo” in the downward direction not the upwards one :) .

User avatar
bluquark
Posts: 1119
Joined: Mon Oct 22, 2018 2:30 pm

Re: 2020 COVID Crash Lessons

Post by bluquark » Wed Mar 18, 2020 11:26 pm

I heard a lot of vague talk in the past about mutual fund illiquidity causing pain and problems in crashes. It turns out that this is purely from the point of view of mutual fund providers, not mutual fund holders. Mutual funds find it a giant pain in the butt to execute a 7-figure TLH at NAV while the market is going crazy, I'm sure. But from the fundholder perspective, it's a smooth and stress-free experience compared to personally dealing with the roller coaster of ETF trades in ridiculous volatility levels.

If you hadn't set a market order but a marketable limit order, it's quite possible your order would not have executed because your limit was already below the ask by the time you clicked the button. That happened to me Thursday. I had to cancel my limit order and place again, wasting more precious seconds as the market kept going up every time I clicked "refresh". It's quite possible your market order actually *saved* you thousands. (Of course your advice #1 or #2 are even better solutions.)
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB

User avatar
Scott S
Posts: 1481
Joined: Mon Nov 24, 2008 3:28 am
Location: CID

Re: 2020 COVID Crash Lessons

Post by Scott S » Wed Mar 18, 2020 11:28 pm

For me, not as much a "lesson" as a confirmation that one's asset allocation must be one that they can live with in both euphoric and harrowing times. My "boring" AA might have given up some potential gains over the past decade, but it lets me sleep well at night. No thoughts of panicking and cashing in, here! :beer

Thesaints
Posts: 3455
Joined: Tue Jun 20, 2017 12:25 am

Re: 2020 COVID Crash Lessons

Post by Thesaints » Wed Mar 18, 2020 11:29 pm

fatFIRE wrote:
Wed Mar 18, 2020 11:25 pm
I'll add another observation/lesson.

It does seem that ETFs are more advantageous in times like this because I can place a limit order for opportunistic rebalancing when stuff drops below a certain threshold. Also given the volatility during the day itself makes it quite difficult to estimate losses for TLH purposes using mutual funds.

Does anyone agree with me on this?
No. The "limit order for opportunistic rebalance" is a little more likely to lose you money than it is to do the opposite.

fatFIRE
Posts: 346
Joined: Sat Feb 15, 2020 10:44 pm

Re: 2020 COVID Crash Lessons

Post by fatFIRE » Wed Mar 18, 2020 11:33 pm

Thesaints wrote:
Wed Mar 18, 2020 11:29 pm
fatFIRE wrote:
Wed Mar 18, 2020 11:25 pm
I'll add another observation/lesson.

It does seem that ETFs are more advantageous in times like this because I can place a limit order for opportunistic rebalancing when stuff drops below a certain threshold. Also given the volatility during the day itself makes it quite difficult to estimate losses for TLH purposes using mutual funds.

Does anyone agree with me on this?
No. The "limit order for opportunistic rebalance" is a little more likely to lose you money than it is to do the opposite.
Why? The problem with mutual funds now is that I have to wait till 3.30pm EST to figure out if I want to sell them in order to get an accurate price and estimate my losses/gains. The other day I missed the cutoff time, when it sold the next day when the market was up, and I couldn't cancel that order.. Luckily I am WFHing now, but it would not be possible under normal situations to monitor my investments with such precise timings.

Also the other day I managed to score VXUS at $37 for a set-and-forget limit order. I believe that day closed at higher than $37, and the $37 price was attainable only at the day's open. If I used a mutual fund, I would not have been able to score that extra discount.
Last edited by fatFIRE on Wed Mar 18, 2020 11:38 pm, edited 4 times in total.

User avatar
1789
Posts: 1514
Joined: Fri Aug 16, 2019 3:31 pm

Re: 2020 COVID Crash Lessons

Post by 1789 » Wed Mar 18, 2020 11:34 pm

Top priority is have enough CA$H to survive the crash and possible unemployment situation. Keep investing simple and understand that no one knows any better than you when it comes to guess what markets going to do next. Stay away from speculations and keep going in opposite direction to herd.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

Lee_WSP
Posts: 2669
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: 2020 COVID Crash Lessons

Post by Lee_WSP » Wed Mar 18, 2020 11:45 pm

mrspock wrote:
Wed Mar 18, 2020 9:23 pm
or via the "Exchange Fund" in Fidelity.
It works with ETF's? I have never seen this tool and would like to know more.

User avatar
Topic Author
mrspock
Posts: 1076
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: 2020 COVID Crash Lessons

Post by mrspock » Wed Mar 18, 2020 11:46 pm

bluquark wrote:
Wed Mar 18, 2020 11:26 pm
I heard a lot of vague talk in the past about mutual fund illiquidity causing pain and problems in crashes. It turns out that this is purely from the point of view of mutual fund providers, not mutual fund holders. Mutual funds find it a giant pain in the butt to execute a 7-figure TLH at NAV while the market is going crazy, I'm sure. But from the fundholder perspective, it's a smooth and stress-free experience compared to personally dealing with the roller coaster of ETF trades in ridiculous volatility levels.

If you hadn't set a market order but a marketable limit order, it's quite possible your order would not have executed because your limit was already below the ask by the time you clicked the button. That happened to me Thursday. I had to cancel my limit order and place again, wasting more precious seconds as the market kept going up every time I clicked "refresh". It's quite possible your market order actually *saved* you thousands. (Of course your advice #1 or #2 are even better solutions.)
Both very good points. In theory, the idea behind holding the ETF was that VOO has a lower MER vs. the mutual fund equivalent I can hold with Schwab (which is no longer the case, read onward). I might just move this to the Admiral Mutual Fund version of VOO or VTI if I get another TLH opportunity which isn't on a crazy volatile day, or towards the end of one. I just noticed these are now available through Schwab now since they did away with the dual class shares for passive funds.

angelescrest
Posts: 1059
Joined: Tue May 27, 2008 10:48 am
Location: Texas

Re: 2020 COVID Crash Lessons

Post by angelescrest » Wed Mar 18, 2020 11:48 pm

bligh wrote:
Wed Mar 18, 2020 10:18 pm
ionball wrote:
Wed Mar 18, 2020 9:38 pm
dmcmahon wrote:
Wed Mar 18, 2020 9:35 pm
Lesson #5: always have a month’s worth of toilet paper and canned food on hand.
+1
I think I will hold strategic toilet paper reserves. Then when disaster strikes I will sit outside my local costco with supplies and help provide liquidity to the market, at a small premium of course.
So...what would have happened with regard to TP if this was a cholera outbreak, as widespread? :shock:

palanzo
Posts: 804
Joined: Thu Oct 10, 2019 4:28 pm

Re: 2020 COVID Crash Lessons

Post by palanzo » Wed Mar 18, 2020 11:48 pm

willthrill81 wrote:
Wed Mar 18, 2020 10:55 pm
CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
For completeness, TBM is down -0.27% year-to-date.

Lee_WSP
Posts: 2669
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: 2020 COVID Crash Lessons

Post by Lee_WSP » Wed Mar 18, 2020 11:51 pm

palanzo wrote:
Wed Mar 18, 2020 11:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:55 pm
CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
For completeness, TBM is down -0.27% year-to-date.
And TLT is only up 5% YTD. Basically back to January. :\

palanzo
Posts: 804
Joined: Thu Oct 10, 2019 4:28 pm

Re: 2020 COVID Crash Lessons

Post by palanzo » Wed Mar 18, 2020 11:54 pm

Lee_WSP wrote:
Wed Mar 18, 2020 11:51 pm
palanzo wrote:
Wed Mar 18, 2020 11:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:55 pm
CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm


Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
For completeness, TBM is down -0.27% year-to-date.
And TLT is only up 5% YTD. Basically back to January. :\
You should be using VLGSX up 8.08% YTD. :D

User avatar
bligh
Posts: 1288
Joined: Wed Jul 27, 2016 9:13 pm

Re: 2020 COVID Crash Lessons

Post by bligh » Thu Mar 19, 2020 12:13 am

angelescrest wrote:
Wed Mar 18, 2020 11:48 pm
bligh wrote:
Wed Mar 18, 2020 10:18 pm
ionball wrote:
Wed Mar 18, 2020 9:38 pm
dmcmahon wrote:
Wed Mar 18, 2020 9:35 pm
Lesson #5: always have a month’s worth of toilet paper and canned food on hand.
+1
I think I will hold strategic toilet paper reserves. Then when disaster strikes I will sit outside my local costco with supplies and help provide liquidity to the market, at a small premium of course.
So...what would have happened with regard to TP if this was a cholera outbreak, as widespread? :shock:
Hard to say.. If I was to guess though, I would think the U.S. Treasury would switch to printing toilet paper instead of money and toilet paper would replace the dollar as the worlds reserve currency.

User avatar
txaggie
Posts: 29
Joined: Sat Sep 09, 2017 11:35 pm

Re: 2020 COVID Crash Lessons

Post by txaggie » Thu Mar 19, 2020 12:36 am

CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:45 pm
SimpleGift wrote:
Wed Mar 18, 2020 9:41 pm
One additional lesson may be that bond and bond fund buyers in the future, unless there are structural changes in the markets, are going to have to factor in the relative liquidity of their "safe asset" choices. Muni bond holders have had this lesson reinforced in a big way during this crash.
Yes, that's definitely a lesson that many should have learned.
I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
I learned this lesson today. The Vanguard Tax-Exempt Bond ETF shares (VTEB) fell 5.85% while the mutual fund shares (VTEAX) fell 0.95% today.

travellight
Posts: 2866
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: 2020 COVID Crash Lessons

Post by travellight » Thu Mar 19, 2020 12:53 am

palanzo wrote:
Wed Mar 18, 2020 11:54 pm
Lee_WSP wrote:
Wed Mar 18, 2020 11:51 pm
palanzo wrote:
Wed Mar 18, 2020 11:48 pm
willthrill81 wrote:
Wed Mar 18, 2020 10:55 pm
CoastalWinds wrote:
Wed Mar 18, 2020 10:48 pm


I still don’t understand this, or how to assess it when selecting bond funds. Any help would be appreciated.
The gold-standard (no pun intended) for liquidity in fixed income (and probably any asset class) in the world is U.S. Treasuries. Everything else gets measured by that standard. Municipal bonds have much 'thinner' markets. For the most part, they're only appealing to a fairly narrow segment of the population. As a result, if a significant number of muni bond holders want to sell, there may not be enough buyers to go around, and the result is prices drop. Consequently, year-to-date, Vanguard's VWITX has lost 2.84%, while the Treasury counterpart VFIUX is up 3.83%.

As SimpleGift pointed out, fixed income holders should keep in mind the relative liquidity of their holdings. When you're rebalancing from bonds to stocks in a market downturn, you would rather sell bonds that are up almost 4% instead of bonds that are down almost 3%.
For completeness, TBM is down -0.27% year-to-date.
And TLT is only up 5% YTD. Basically back to January. :\
You should be using VLGSX up 8.08% YTD. :D
Why is this so high? What is the downside to this holding?
364

User avatar
bluquark
Posts: 1119
Joined: Mon Oct 22, 2018 2:30 pm

Re: 2020 COVID Crash Lessons

Post by bluquark » Thu Mar 19, 2020 12:56 am

travellight wrote:
Thu Mar 19, 2020 12:53 am
palanzo wrote:
Wed Mar 18, 2020 11:54 pm

You should be using VLGSX up 8.08% YTD. :D
Why is this so high? What is the downside to this holding?
Long-term treasuries have gone up because they're a haven in terms of credit risk and because they go up when interest rate expectations drop. The downside is that they could someday crash if interest rate expectations rise instead of dropping.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB

Post Reply