Author Topic: What if no one buys my index at retirement  (Read 4777 times)

RiddleMB

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Re: What if no one buys my index at retirement
« Reply #50 on: August 15, 2019, 01:03:38 AM »
Quote
Nothing, apart from the fact that noone will buy if from you. The big US-based ETFs have, from your point of view, infinite liquidity at very tight prices so it will only trade at or extremely close to its actual value. If you stick in a sell order at a higher price it won't get match until the market actually moves until it's the correct price and the trade will go through. If the market goes the other way your sell order will never be executed.

Awesome! Makes perfect sense!
Thank you everyone who made it clear for me!

Side note: today I found this interview with Bogle who explains why he things gold is not an investment, unlike stocks. Sound a lot like my writing about Gibson guitars (and what I used to think about stocks): https://www.youtube.com/watch?v=KlhT07G8zGs

ctuser1

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Re: What if no one buys my index at retirement
« Reply #51 on: August 15, 2019, 05:53:36 AM »

The NAV makes sense to me. I guess I can open an investment account and buy ETF without worries.


I wouldn’t call etfs (or stocks, or bonds) a no-worry investment. They are certainly a lot less risky than your Gibson guitars, or gold or any other such speculative assets. They are not risk free, however!

I’m not a bond expert. They appear crazy overpriced to me today, so I won’t comment.

To mitigate the typical risks with stock market, try to imagine what you will do when the next bear market and 50+% drop hits. Because what you do then will determine your long term returns. And you WILL get a number of them over your lifetime of investment.

You can NOT sell in a panic when that happens.

The most logical setup is, 1 years of expenses in cash.
Further, you should decide on asset allocation. I was 100% in stocks, working on going to 90% (with 10% in cash/mma). The larger the non stock share, the lower the bite of the 50% drops. Plus, you will buy low sell high when you rebalance (every quarter? Year?).


Once you have set up your portfolio like this, THEN stop worrying about it and look at it only when you will rebalance every year/quarter!!

Hope it helps.

RiddleMB

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Re: What if no one buys my index at retirement
« Reply #52 on: August 15, 2019, 06:00:27 AM »
Indeed, thanks for the warning.

I'v been reading several times the part in the Stock Series about panicking during crashes and selling.

Fortunately for me, I'm single who won't have kids, live a very modest life and never read the news anyway, thus I plan on having VTI only.
I agree about holding cash for 1-3 years, as opposed to blending bonds.
« Last Edit: August 18, 2019, 10:43:55 PM by RiddleMB »

ctuser1

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Re: What if no one buys my index at retirement
« Reply #53 on: August 15, 2019, 06:17:56 AM »
Amen.

Time for a cool story.

Before 2008, I was working at a shop that used to publish one of the larger commodity indices.

It was a large trading shop too. So they just did not publish the indices, but would also allow you to take large positions for/against it.

The trader in charge of all these hated how slow the IT/Quants are. So he wrote some VBA code in a spreadsheet that would suck down prices from bloomberg, do some calc, and publish the indices back to bloomberg - all from within that spreadsheet!!

That spreadsheet was the index publisher!!

All these worked for 10 years. Then one fine morning, the spreadsheet decided to crash!!

For two hours, nobody noticed. Well, nobody but the arbitrageurs in the market!! They piled in! They would buy individual components, deliver them and demand creation units. Or they would buy the ETF, and demand delivery of unerlying components. Basically they were arbitraging the ETF price based on whether it was above or below the NAV!!

My employer bled some $50Million in 2 hours.

I was at lunch at around 12:30 that day. I got dragged from there to the trading floor by my manager, who seemed like his (non-existent) hair was on fire. The trading desk head demanded to know how many hours will it take for us to rewrite this thing so that it is properly reliable!!

Let's just say I spent a few days, and nights, working on that!!

Bottomline, if the ETF price diverges too far then most likely somebody is getting dragged from his lunch and being put to work days and nights to remedy that!! That should alleviate some of your worries.

 

RiddleMB

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Re: What if no one buys my index at retirement
« Reply #54 on: August 15, 2019, 06:26:21 AM »
Wow! Cool story indeed! $50Million in 2 hours XD

I'll definitely be paying more attention to the NAV when buying.

Villanelle

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Re: What if no one buys my index at retirement
« Reply #55 on: August 15, 2019, 10:55:58 AM »
You wanting to sell at way above NAV can be compared back to those Gibsons, even though we've agreed they aren't really comparable.  But in this case, a comparison can serve as a simple explanation.

There's no reason at all you can't try to sell a Gibson (without special pedigree or provenance) for $100,000.  You absolutely can.  Run the add on Craigslist, put up signs in your neighborhood and post on a guitar message board.  And no one will buy it.

Now you could slightly overprice a Gibson and you might sell it because you'd find a buyer who doesn't know better or is maybe desperate for some reason. That wouldn't happen with equities.  With your ETFs, there are so many other shares being offered at fair price (whatever that is in that moment) at any time someone is shopping, that you are never going to find that desperate or ignorant buyer, because there will always be a $4000 (assuming that's fair price for that particular Gibson) identical guitar listed right next to your $100,000. And there will always be ETFs listed at $100 when yours are $125 or even $103.  So yours will never, ever sell.  But you could certainly try, with either the guitar or the ETF.  You'd just be stuck with it forever (or until the price you are offering somehow becomes fair and the same as what everyone else is selling for).