Can VTSAX accidentally sell all its stock holdings?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
userwithconcern
Posts: 88
Joined: Mon Dec 23, 2019 12:35 pm

Can VTSAX accidentally sell all its stock holdings?

Post by userwithconcern »

Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. How often does this sort of a thing happen? Is this a reason to diversify between different fund providers?
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. Is this a reason to diversify between different fund providers?
It's less likely than a celestial body impacting the earth. I really suggest you worry about that possibility instead.

The assets of TSM are $917.9 billion. That's billion with a B. I think someone at Vanguard would notice. The market would certainly notice!
MotoTrojan
Posts: 10659
Joined: Wed Feb 01, 2017 8:39 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by MotoTrojan »

palanzo wrote: Tue Sep 15, 2020 9:09 pm
userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. Is this a reason to diversify between different fund providers?
It's less likely than a celestial body impacting the earth. I really suggest you worry about that possibility instead.

The assets of TSM are $917.9 billion. That's billion with a B. I think someone at Vanguard would notice. The market would certainly notice!
Indeed. If Vanguard sold $917.9B of TSM's holdings at once, you wouldn't be safe in any fund.
langlands
Posts: 569
Joined: Wed Apr 03, 2019 10:05 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by langlands »

Look up the 2010 Flash Crash. We survived that.
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

MotoTrojan wrote: Tue Sep 15, 2020 9:13 pm
palanzo wrote: Tue Sep 15, 2020 9:09 pm
userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. Is this a reason to diversify between different fund providers?
It's less likely than a celestial body impacting the earth. I really suggest you worry about that possibility instead.

The assets of TSM are $917.9 billion. That's billion with a B. I think someone at Vanguard would notice. The market would certainly notice!
Indeed. If Vanguard sold $917.9B of TSM's holdings at once, you wouldn't be safe in any fund.
Indeed.
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

langlands wrote: Tue Sep 15, 2020 9:20 pm Look up the 2010 Flash Crash. We survived that.
Flash crash was not 1 trillion of TSM being sold but you make a good point.
an_asker
Posts: 2728
Joined: Thu Jun 27, 2013 2:15 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by an_asker »

palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
This is 2020. Please. No. Tempting. Fate. :oops:
langlands
Posts: 569
Joined: Wed Apr 03, 2019 10:05 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by langlands »

palanzo wrote: Tue Sep 15, 2020 9:22 pm
langlands wrote: Tue Sep 15, 2020 9:20 pm Look up the 2010 Flash Crash. We survived that.
Flash crash was not 1 trillion of TSM being sold but you make a good point.
True, but the point is that the 1 trillion wouldn't go through. Market makers would immediately pull all bids and the market would just disappear. Exchanges would be halted and SEC would come in to ask what the heck happened.
langlands
Posts: 569
Joined: Wed Apr 03, 2019 10:05 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by langlands »

The story of what happened at Knight Capital Group in 2012 is also interesting. Quoting from https://en.wikipedia.org/wiki/Knight_Capital_Group,
On August 1, 2012, Knight Capital caused a major stock market disruption leading to a large trading loss for the company. The incident happened after a technician forgot to copy the new Retail Liquidity Program (RLP) code to one of the eight SMARS computer servers, which was Knight's automated routing system for equity orders. RLP code repurposed a flag that was formerly used to activate the old function known as 'Power Peg'. Power Peg was designed to move stock prices higher and lower in order to verify the behavior of trading algorithms in a controlled environment.[12] Therefore, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server.[13]

When released into production, Knight's trading activities caused a major disruption in the prices of 148 companies listed at the New York Stock Exchange. For example, shares of Wizzard Software Corporation went from $3.50 to $14.76. For the 212 incoming parent orders that were processed by the defective Power Peg code, Knight Capital sent millions of child orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes.[13]

Knight Capital took a pre-tax loss of $440 million. This caused Knight Capital's stock price to collapse, sending shares lower by over 70% from before the announcement. The nature of the Knight Capital's unusual trading activity was described as a "technology breakdown".[14][15]
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

langlands wrote: Tue Sep 15, 2020 9:24 pm
palanzo wrote: Tue Sep 15, 2020 9:22 pm
langlands wrote: Tue Sep 15, 2020 9:20 pm Look up the 2010 Flash Crash. We survived that.
Flash crash was not 1 trillion of TSM being sold but you make a good point.
True, but the point is that the 1 trillion wouldn't go through. Market makers would immediately pull all bids and the market would just disappear. Exchanges would be halted and SEC would come in to ask what the heck happened.
Of course. I was being polite in replying to the OP. It's a ridiculous thing to worry about. Might as well worry about the zombies.
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

an_asker wrote: Tue Sep 15, 2020 9:23 pm
palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
This is 2020. Please. No. Tempting. Fate. :oops:
There are more than 3 months left in 2020 :twisted:
Blue456
Posts: 1018
Joined: Tue Jun 04, 2019 5:46 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Blue456 »

palanzo wrote: Tue Sep 15, 2020 9:31 pm
an_asker wrote: Tue Sep 15, 2020 9:23 pm
palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
This is 2020. Please. No. Tempting. Fate. :oops:
There are more than 3 months left in 2020 :twisted:
Funny, I feel the same way. This year has been nothing short of crazy.
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

Blue456 wrote: Tue Sep 15, 2020 9:43 pm
palanzo wrote: Tue Sep 15, 2020 9:31 pm
an_asker wrote: Tue Sep 15, 2020 9:23 pm
palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
This is 2020. Please. No. Tempting. Fate. :oops:
There are more than 3 months left in 2020 :twisted:
Funny, I feel the same way. This year has been nothing short of crazy.
I did not have the heart to tell an_asker that archeologists have discovered that the Mayan calendar was off by 8 years! :twisted:
User avatar
Brianmcg321
Posts: 979
Joined: Mon Jul 15, 2019 8:23 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Brianmcg321 »

It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Blue456
Posts: 1018
Joined: Tue Jun 04, 2019 5:46 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Blue456 »

Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Imagine a house cat steps over the mouse and everything gets liquidated... Hell of a store to explain.
UpperNwGuy
Posts: 4106
Joined: Sun Oct 08, 2017 7:16 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by UpperNwGuy »

userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. How often does this sort of a thing happen? Is this a reason to diversify between different fund providers?
What are you proposing? That you spread your investments across VTSAX, SWTSX, FSKAX, ITOT, and SPY to reduce risk?
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Yes, but it's running on Win 98 with a Cobol backend!
User avatar
Brianmcg321
Posts: 979
Joined: Mon Jul 15, 2019 8:23 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Brianmcg321 »

palanzo wrote: Tue Sep 15, 2020 9:59 pm
Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Yes, but it's running on Win 98 with a Cobol backend!
They are probably all still playing Minesweeper, and wondering why their AOL dial-up is always busy.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
drk
Posts: 1924
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Can VTSAX accidentally sell all its stock holdings?

Post by drk »

No, because VTSAX doesn't really sell holdings. Its turnover rate in 2019 was all of 4.1%.

If you're interested in learning about the fund's actual operations rather than being concerned for no reason, the Trillions podcast recently interviewed Gerald O'Reilly, the principal PM for Vanguard's big stock funds.
Last edited by drk on Tue Sep 15, 2020 11:04 pm, edited 1 time in total.
User avatar
Steve Reading
Posts: 2460
Joined: Fri Nov 16, 2018 10:20 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Steve Reading »

langlands wrote: Tue Sep 15, 2020 9:26 pm The story of what happened at Knight Capital Group in 2012 is also interesting. Quoting from https://en.wikipedia.org/wiki/Knight_Capital_Group,
On August 1, 2012, Knight Capital caused a major stock market disruption leading to a large trading loss for the company. The incident happened after a technician forgot to copy the new Retail Liquidity Program (RLP) code to one of the eight SMARS computer servers, which was Knight's automated routing system for equity orders. RLP code repurposed a flag that was formerly used to activate the old function known as 'Power Peg'. Power Peg was designed to move stock prices higher and lower in order to verify the behavior of trading algorithms in a controlled environment.[12] Therefore, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server.[13]

When released into production, Knight's trading activities caused a major disruption in the prices of 148 companies listed at the New York Stock Exchange. For example, shares of Wizzard Software Corporation went from $3.50 to $14.76. For the 212 incoming parent orders that were processed by the defective Power Peg code, Knight Capital sent millions of child orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes.[13]

Knight Capital took a pre-tax loss of $440 million. This caused Knight Capital's stock price to collapse, sending shares lower by over 70% from before the announcement. The nature of the Knight Capital's unusual trading activity was described as a "technology breakdown".[14][15]
Dude lmao
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
Doctor Rhythm
Posts: 426
Joined: Mon Jan 22, 2018 3:55 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Doctor Rhythm »

Blue456 wrote: Tue Sep 15, 2020 9:58 pm Imagine a house cat steps over the mouse and everything gets liquidated... Hell of a store to explain.
Vanguard has a strictly enforced “no cats allowed” rule to prevent this. Apparently, the cats are not happy about it and are defecting to Fidelity en masse. Watch for intense interest in the Fidelity Advisor Semiconductors Fund (FELIX).
000
Posts: 2744
Joined: Thu Jul 23, 2020 12:04 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by 000 »

Yes.

However I place such a risk in the negligible chance bucket.

But spreading one's assets between two fund families is not a bad idea if one is concerned.
Pacific
Posts: 1396
Joined: Tue Mar 06, 2007 8:19 pm
Location: Lost in the middle of the Pacific

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Pacific »

If Vanguard accidentally sold all of VTSAX, who would accidentally buy it?
vsquid
Posts: 60
Joined: Sat May 18, 2019 2:24 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by vsquid »

Yes. If they using Interactive Brokers, there is a big button that says Close All Positions.. However if they accidentally sell everything, the fund will still have all the cash they got from the sales.
an_asker
Posts: 2728
Joined: Thu Jun 27, 2013 2:15 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by an_asker »

palanzo wrote: Tue Sep 15, 2020 9:49 pm
Blue456 wrote: Tue Sep 15, 2020 9:43 pm
palanzo wrote: Tue Sep 15, 2020 9:31 pm
an_asker wrote: Tue Sep 15, 2020 9:23 pm
palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
This is 2020. Please. No. Tempting. Fate. :oops:
There are more than 3 months left in 2020 :twisted:
Funny, I feel the same way. This year has been nothing short of crazy.
I did not have the heart to tell an_asker that archeologists have discovered that the Mayan calendar was off by 8 years! :twisted:
Oh boy!! :oops:
User avatar
neurosphere
Posts: 3785
Joined: Sun Jan 17, 2010 1:55 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by neurosphere »

So as not to have this thread locked (despite my enjoying some of the comments), and by way of education, let's nudge the OPs question to the question he SHOULD be asking, rather than the question he asked.

"What kinds of situations, if any, do you think might make diversifying across funds, fund families, or brokerages a prudent thing to do?"

Examples:

-- The other day several people reported not being able to access their Vanguard accounts. It didn't last long, but what it if lasted days? What if the down payment on your home were in a Vanguard MMF you needed to transfer to ensure it gets to your bank in time before the closing?

-- There is fraudulent (or possibly fraudulent) activity in your brokerage accounts, so the brokerage locks you out. This might take time to resolve. Days? Weeks? Months? In the meantime, you can't transact. Might having assets at another brokerage be prudent?

I'm just throwing stuff out that have either happened, or in the range of plausible. As opposed to a meteor ever :wink: hitting the earth. I mean, what are the chances of THAT?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by inbox788 »

Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Don't give them any ideas. They could set off a panic that cuts the market by 50%, but if they had liquidated $1T, they could buy back twice as much at the bottom. When it recovers, rinse and repeat.

Tesla stock is falling. They need to split again.
Pacific wrote: Wed Sep 16, 2020 2:02 am If Vanguard accidentally sold all of VTSAX, who would accidentally buy it?
Robinhood traders, Warren Buffet Berkshire Hathaway and of course Jeff Bezos. Who else has that kind of pocket change?
neurosphere wrote: Wed Sep 16, 2020 11:15 am-- There is fraudulent (or possibly fraudulent) activity in your brokerage accounts, so the brokerage locks you out. This might take time to resolve. Days? Weeks? Months? In the meantime, you can't transact. Might having assets at another brokerage be prudent?
On this serious question, days and weeks shouldn't matter at all. That's what savings and checking accounts is about. And your credit cards get you through. If that's a concern, you've got to do some re-planning. For the months long question or longer, it would help to involve an alternative. But if that was a problem, I'd be in contact constantly with the brokerage until it was resolved ASAP, and I don't mean months. By the time it hits a month, it should be escalated to the CEO office or legal proceedings should be considered. Guess you might need some funds to pay a lawyer.
balbrec2
Posts: 340
Joined: Mon Nov 13, 2017 3:03 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by balbrec2 »

Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
I would think since this is all done on computers, that the programming would have several
layers of safeguards built into large transactions. Accidental wrong transactions affect
ones credibility. 8-)
User avatar
whodidntante
Posts: 9115
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Can VTSAX accidentally sell all its stock holdings?

Post by whodidntante »

I hope so. It would create a buying opportunity.
tibbitts
Posts: 11894
Joined: Tue Feb 27, 2007 6:50 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by tibbitts »

neurosphere wrote: Wed Sep 16, 2020 11:15 am Examples:

-- The other day several people reported not being able to access their Vanguard accounts. It didn't last long, but what it if lasted days? What if the down payment on your home were in a Vanguard MMF you needed to transfer to ensure it gets to your bank in time before the closing?

-- There is fraudulent (or possibly fraudulent) activity in your brokerage accounts, so the brokerage locks you out. This might take time to resolve. Days? Weeks? Months? In the meantime, you can't transact. Might having assets at another brokerage be prudent?
The first is kind of a lack of preparation thing - just yesterday I did something a little ahead of time because there was a deadline approaching. I lost the time I was paying for between now and the deadline but so be it. Less hassle than dealing with a glitch delaying a last-day transaction.

The second point I think is more concerning. There is absolutely no assurance that you would ever be even partly compensated. So I can see that being a reason for multiple providers. Worse yet you might invest tens of thousands in litigation (using money you no longer have) and still lose. I don't know of instances of this happening but that doesn't mean it hasn't, or couldn't, occur.
User avatar
firebirdparts
Posts: 1787
Joined: Thu Jun 13, 2019 4:21 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by firebirdparts »

Steve Reading wrote: Tue Sep 15, 2020 10:21 pm
langlands wrote: Tue Sep 15, 2020 9:26 pm The story of what happened at Knight Capital Group in 2012 is also interesting. Quoting from https://en.wikipedia.org/wiki/Knight_Capital_Group,
On August 1, 2012, Knight Capital caused a major stock market disruption leading to a large trading loss for the company. The incident happened after a technician forgot to copy the new Retail Liquidity Program (RLP) code to one of the eight SMARS computer servers, which was Knight's automated routing system for equity orders. RLP code repurposed a flag that was formerly used to activate the old function known as 'Power Peg'. Power Peg was designed to move stock prices higher and lower in order to verify the behavior of trading algorithms in a controlled environment.[12] Therefore, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server.[13]

When released into production, Knight's trading activities caused a major disruption in the prices of 148 companies listed at the New York Stock Exchange. For example, shares of Wizzard Software Corporation went from $3.50 to $14.76. For the 212 incoming parent orders that were processed by the defective Power Peg code, Knight Capital sent millions of child orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes.[13]

Knight Capital took a pre-tax loss of $440 million. This caused Knight Capital's stock price to collapse, sending shares lower by over 70% from before the announcement. The nature of the Knight Capital's unusual trading activity was described as a "technology breakdown".[14][15]
Dude lmao
I think they said it was Michael Bolton that was suppose to change that code, not the famous one, the other one.
A fool and your money are soon partners
User avatar
whodidntante
Posts: 9115
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Can VTSAX accidentally sell all its stock holdings?

Post by whodidntante »

firebirdparts wrote: Wed Sep 16, 2020 1:56 pm
Steve Reading wrote: Tue Sep 15, 2020 10:21 pm
langlands wrote: Tue Sep 15, 2020 9:26 pm The story of what happened at Knight Capital Group in 2012 is also interesting. Quoting from https://en.wikipedia.org/wiki/Knight_Capital_Group,
On August 1, 2012, Knight Capital caused a major stock market disruption leading to a large trading loss for the company. The incident happened after a technician forgot to copy the new Retail Liquidity Program (RLP) code to one of the eight SMARS computer servers, which was Knight's automated routing system for equity orders. RLP code repurposed a flag that was formerly used to activate the old function known as 'Power Peg'. Power Peg was designed to move stock prices higher and lower in order to verify the behavior of trading algorithms in a controlled environment.[12] Therefore, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server.[13]

When released into production, Knight's trading activities caused a major disruption in the prices of 148 companies listed at the New York Stock Exchange. For example, shares of Wizzard Software Corporation went from $3.50 to $14.76. For the 212 incoming parent orders that were processed by the defective Power Peg code, Knight Capital sent millions of child orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes.[13]

Knight Capital took a pre-tax loss of $440 million. This caused Knight Capital's stock price to collapse, sending shares lower by over 70% from before the announcement. The nature of the Knight Capital's unusual trading activity was described as a "technology breakdown".[14][15]
Dude lmao
I think they said it was Michael Bolton that was suppose to change that code, not the famous one, the other one.
I believe you have my stapler. :happy

The Power Peg code was aptly named in my opinion. :oops:
User avatar
SmileyFace
Posts: 5703
Joined: Wed Feb 19, 2014 10:11 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by SmileyFace »

If it did happen you might be better off holding VTSAX than a competitors fund!
Imagine - VTSAX sells the US Stock Market at volume it has driving prices down substantially (as stocks are flooding the market) across the board - likely crashing the market. The next day VTSAX can buy it all back at much lower prices driving prices back up. You have sold high and bought low - instant 1-day gains.
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by inbox788 »

tibbitts wrote: Wed Sep 16, 2020 12:07 pm
neurosphere wrote: Wed Sep 16, 2020 11:15 am Examples:

-- The other day several people reported not being able to access their Vanguard accounts. It didn't last long, but what it if lasted days? What if the down payment on your home were in a Vanguard MMF you needed to transfer to ensure it gets to your bank in time before the closing?

-- There is fraudulent (or possibly fraudulent) activity in your brokerage accounts, so the brokerage locks you out. This might take time to resolve. Days? Weeks? Months? In the meantime, you can't transact. Might having assets at another brokerage be prudent?
The first is kind of a lack of preparation thing - just yesterday I did something a little ahead of time because there was a deadline approaching. I lost the time I was paying for between now and the deadline but so be it. Less hassle than dealing with a glitch delaying a last-day transaction.

The second point I think is more concerning. There is absolutely no assurance that you would ever be even partly compensated. So I can see that being a reason for multiple providers. Worse yet you might invest tens of thousands in litigation (using money you no longer have) and still lose. I don't know of instances of this happening but that doesn't mean it hasn't, or couldn't, occur.
What you can do to prepare is limited. There might be market glitches that delay liquidation or system glitches that impact all accounts. Neither is predictable and for rare events, seems more trouble than it's worth. Moving funds from less liquid equities might be prudent, but if the account itself is the problem, it's no help. And if your concern is Vanguard, you can move it to your B&M bank, but their account system is just as vulnerable to these glitches.

More concerning is cyber attacks that could knock them out for prolonged periods. Banks have not been forthright with attacks for fear of loss of confidence, but municipalities have admitted to being victims more and more frequently. Here's where cloud solutions with automatic backup and recovery will be the long term solution, but might take a while for all these organizations to get there.

Chilean bank shuts down all branches following ransomware attack
All BancoEstado branches will remain closed on Monday, September 7, and possibly more days.
https://www.zdnet.com/article/chilean-b ... re-attack/

What ransomware attacks on vendors mean for banks
https://www.americanbanker.com/news/wha ... -for-banks

Seychelles Bank Doesn’t Know How It Got Infected with Ransomware Last Week
https://securityboulevard.com/2020/09/s ... last-week/

Municipality Ransomware Attacks Up 60% in 2019, Kaspersky Research Finds
At least 174 municipal institutions suffered ransomware attacks in 2019, a 60% year-over-year increase, antivirus software provider Kaspersky says.
https://www.msspalert.com/cybersecurity ... acks-2019/
cheezit
Posts: 377
Joined: Sat Jul 14, 2018 7:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by cheezit »

DaftInvestor wrote: Wed Sep 16, 2020 2:31 pm If it did happen you might be better off holding VTSAX than a competitors fund!
Imagine - VTSAX sells the US Stock Market at volume it has driving prices down substantially (as stocks are flooding the market) across the board - likely crashing the market. The next day VTSAX can buy it all back at much lower prices driving prices back up. You have sold high and bought low - instant 1-day gains.
If every seller knows VTSAX is being forced to buy massive quantities of shares, everyone and their brother will frontrun and the ask prices of everything will go through the roof.

That being said, I think the most likely outcome of this exceedingly unlikely scenario is that circuit breakers trip seconds or minutes into the accidental selling process, and NYSE and NASDAQ probably retroactively cancel some transactions. This holds whether it's Vanguard or Blackrock or StateStreet or Fido or whoever fat-fingering the sell everything button.
jdb
Posts: 1670
Joined: Wed Dec 05, 2012 8:21 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by jdb »

palanzo wrote: Tue Sep 15, 2020 9:30 pm
langlands wrote: Tue Sep 15, 2020 9:24 pm
palanzo wrote: Tue Sep 15, 2020 9:22 pm
langlands wrote: Tue Sep 15, 2020 9:20 pm Look up the 2010 Flash Crash. We survived that.
Flash crash was not 1 trillion of TSM being sold but you make a good point.
True, but the point is that the 1 trillion wouldn't go through. Market makers would immediately pull all bids and the market would just disappear. Exchanges would be halted and SEC would come in to ask what the heck happened.
Of course. I was being polite in replying to the OP. It's a ridiculous thing to worry about. Might as well worry about the zombies.
This is a great thread. First time that I have seen zombies mentioned. I am prepared. Bought the Not A Flamethrower from Elon Musk a couple years ago, supposed to work great against zombies. So far only use is to caramelize cheese on top of grilled burgers during monthly afternoon “prayer meetings” with the guys over whiskey and cigars. But nice to be prepared. Good luck.
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by inbox788 »

cheezit wrote: Wed Sep 16, 2020 3:32 pmThat being said, I think the most likely outcome of this exceedingly unlikely scenario is that circuit breakers trip seconds or minutes into the accidental selling process, and NYSE and NASDAQ probably retroactively cancel some transactions. This holds whether it's Vanguard or Blackrock or StateStreet or Fido or whoever fat-fingering the sell everything button.
Well that would would be what happens to ETF VTI average daily volume around 3M shares so about $0.5B. However, VTSAX is a mutual fund that trades at close. $1T sell order would be quite and imbalance...probably clearing down to zero! Might depend on what time the fat (huge, collasal) finger pushes the wrong button. I don't know if half an hour is enough to resolve the panic that will ensue if such an order hits the tape. If it's sitting there overnight, it will be quite an interesting evening, not to mention opening next day.
Do we have a circuit breaker in mutual funds?
Dhirendra Kumar explains why mutual funds do not have the 'circuit breaker' provision, unlike stocks

With regard to mutual funds, you can only estimate the increase or decrease in NAV by a certain percentage on the basis of the market movement. If you transact before 3:30 pm, you will get that day's NAV, which is decided only after the market is closed. Similarly, if you transact after 3:30, you will get the NAV of the next business day, which is not known to you.
https://www.valueresearchonline.com/sto ... tual-funds
User avatar
abuss368
Posts: 21588
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Can VTSAX accidentally sell all its stock holdings?

Post by abuss368 »

userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. How often does this sort of a thing happen? Is this a reason to diversify between different fund providers?
That is a good question and I can’t even imagine. The fund is practically a &1 TRILLION fund. Not sure if that would be possible.
John C. Bogle: “Simplicity is the master key to financial success."
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

abuss368 wrote: Wed Sep 16, 2020 5:15 pm
userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. How often does this sort of a thing happen? Is this a reason to diversify between different fund providers?
That is a good question and I can’t even imagine. The fund is practically a &1 TRILLION fund. Not sure if that would be possible.
If you read the thread you will find that it is not possible.
User avatar
abuss368
Posts: 21588
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Can VTSAX accidentally sell all its stock holdings?

Post by abuss368 »

palanzo wrote: Wed Sep 16, 2020 5:56 pm
abuss368 wrote: Wed Sep 16, 2020 5:15 pm
userwithconcern wrote: Tue Sep 15, 2020 9:05 pm Is this possible at all? I have read of various traders making mistakes elsewhere. Was just wondering if it is possible for a fund management trader to accidentally sell all stocks in say the Vanguard Total Stock Market Index fund. How often does this sort of a thing happen? Is this a reason to diversify between different fund providers?
That is a good question and I can’t even imagine. The fund is practically a &1 TRILLION fund. Not sure if that would be possible.
If you read the thread you will find that it is not possible.
Indeed.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
obafgkm
Posts: 483
Joined: Fri Mar 11, 2016 9:12 am
Location: Pennsylvania

Re: Can VTSAX accidentally sell all its stock holdings?

Post by obafgkm »

palanzo wrote: Tue Sep 15, 2020 9:09 pm [...]
It's less likely than a celestial body impacting the earth.
[...]
an_asker wrote: Tue Sep 15, 2020 9:23 pmThis is 2020. Please. No. Tempting. Fate. :oops:
palanzo wrote: Tue Sep 15, 2020 9:31 pmThere are more than 3 months left in 2020 :twisted:
Blue456 wrote: Tue Sep 15, 2020 9:43 pmFunny, I feel the same way. This year has been nothing short of crazy.
Well, next year, we can say "2020...won".
Silverado
Posts: 380
Joined: Fri Oct 18, 2013 6:07 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by Silverado »

It’s hard to read this thread because of the idiot comments that make up the majority of the responses. We should be more professional.

It’s an interesting question. Sounds like the sheer size will cause it not happen as the authorities would quickly step in.

Thanks to those who posted real responses.
User avatar
JoMoney
Posts: 9769
Joined: Tue Jul 23, 2013 5:31 am

Re: Can VTSAX accidentally sell all its stock holdings?

Post by JoMoney »

Not something I worry about, but as I recall there have been instances of a (not Vanguard) index fund that made some "accidental" trades before the correct rebalancing date of the index. I'm still searching for a link to the news article, but it was awhile back. As I recall the fund company came in and corrected $ amount to make fund owners whole and ensure the fund continues to track the index.
... The nice thing about an "index fund" versus other funds, is you can actually see if the fund isn't tracking the third-party index. If you invest in an active fund you would have no idea if the fund manager meant to execute a particular trade at a particular time or not.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
David Jay
Posts: 9380
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Can VTSAX accidentally sell all its stock holdings?

Post by David Jay »

palanzo wrote: Tue Sep 15, 2020 9:59 pm
Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Yes, but it's running on Win 98 with a Cobol backend!
Funny, but I trust the Cobol back-end (W98, not so much...)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

David Jay wrote: Wed Sep 16, 2020 7:27 pm
palanzo wrote: Tue Sep 15, 2020 9:59 pm
Brianmcg321 wrote: Tue Sep 15, 2020 9:52 pm It’s not like they have a “liquidate everything” button.

If they did surely they would have a pop up stating “Are you sure” “Yes/No”. Lol
Yes, but it's running on Win 98 with a Cobol backend!
Funny, but I trust the Cobol back-end (W98, not so much...)
It was meant to engender a smile in this miserable year that is 2020. I also would trust the Cobol back end. :sharebeer
cheezit
Posts: 377
Joined: Sat Jul 14, 2018 7:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by cheezit »

inbox788 wrote: Wed Sep 16, 2020 5:07 pm
cheezit wrote: Wed Sep 16, 2020 3:32 pmThat being said, I think the most likely outcome of this exceedingly unlikely scenario is that circuit breakers trip seconds or minutes into the accidental selling process, and NYSE and NASDAQ probably retroactively cancel some transactions. This holds whether it's Vanguard or Blackrock or StateStreet or Fido or whoever fat-fingering the sell everything button.
Well that would would be what happens to ETF VTI average daily volume around 3M shares so about $0.5B. However, VTSAX is a mutual fund that trades at close. $1T sell order would be quite and imbalance...probably clearing down to zero! Might depend on what time the fat (huge, collasal) finger pushes the wrong button. I don't know if half an hour is enough to resolve the panic that will ensue if such an order hits the tape. If it's sitting there overnight, it will be quite an interesting evening, not to mention opening next day.
In order to liquidate, Vanguard has to sell the underlying securities for VTSAX during the trading day, and the circuit breakers for those individual stocks will trip. These are the circuit breakers I was referring to.

Also, due to Vanguard's fund structure where the ETF shares and mutual fund shares are different share classes for the same fund, and the nature of ETFs where the Authorized Participant keeps the price close to NAV during the trading day, the circuit breakers for VTI would also trip if an attempt was made to liquidate VTSAX's holdings. (As would the breakers for many, many other ETFs due to the price movement in the underlying securities they have in common with VTSAX/VTI).
User avatar
abuss368
Posts: 21588
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Can VTSAX accidentally sell all its stock holdings?

Post by abuss368 »

Remember the flash crash in May 2010? Imagine what this would trigger!
John C. Bogle: “Simplicity is the master key to financial success."
palanzo
Posts: 1377
Joined: Thu Oct 10, 2019 4:28 pm

Re: Can VTSAX accidentally sell all its stock holdings?

Post by palanzo »

inbox788 wrote: Wed Sep 16, 2020 5:07 pm
cheezit wrote: Wed Sep 16, 2020 3:32 pmThat being said, I think the most likely outcome of this exceedingly unlikely scenario is that circuit breakers trip seconds or minutes into the accidental selling process, and NYSE and NASDAQ probably retroactively cancel some transactions. This holds whether it's Vanguard or Blackrock or StateStreet or Fido or whoever fat-fingering the sell everything button.
Well that would would be what happens to ETF VTI average daily volume around 3M shares so about $0.5B. However, VTSAX is a mutual fund that trades at close. $1T sell order would be quite and imbalance...probably clearing down to zero! Might depend on what time the fat (huge, collasal) finger pushes the wrong button. I don't know if half an hour is enough to resolve the panic that will ensue if such an order hits the tape. If it's sitting there overnight, it will be quite an interesting evening, not to mention opening next day.
Do we have a circuit breaker in mutual funds?
Dhirendra Kumar explains why mutual funds do not have the 'circuit breaker' provision, unlike stocks

With regard to mutual funds, you can only estimate the increase or decrease in NAV by a certain percentage on the basis of the market movement. If you transact before 3:30 pm, you will get that day's NAV, which is decided only after the market is closed. Similarly, if you transact after 3:30, you will get the NAV of the next business day, which is not known to you.
https://www.valueresearchonline.com/sto ... tual-funds
Do you really think there is a button saying sell all? Or that the Vanguard system allows all the assets of TSM to be placed on a sell order?
Post Reply