Covid crash #2 started

MaxiRobriguez

talexuser said:

The problem with saying the markets have already priced something in, is that they obviously haven't just before a bubble bursts and the crash happens. 

Time and time again market movements shows the "pricing in" theory is rubbish, probably because markets cannot factor in very well sharp changes in peoples behaviour which is as much of a key component of driving price change as financial performance and that thing-you-love-to-hate-technical-analysis.

I've found keeping an open mind and having a portfolio which can be flexible to rapid change makes life easier than putting all my eggs in one basket of 'the market will do X' theorists. The trick then is to only make the rapid change when it's actually necessary, which isn't easy either!

Ciprico

How can "already priced in" possibly work - for example, the market can't price in both a Trump and Biden victory, yet either could win.
It could possibly price in a 70% Biden victory and a 30% Trump victory and the direct impact either could have (complex) , but in that case it would be wrong whoever won!
An arguement can be made for "staying in" the market - or "getting out" temporarily, but unless someone has one of these mystical crystal balls future events cannot be factored in...

Alexland

Yes the market is trying to price in the probabilities of different outcomes based on the information that is known. Now of course when new information becomes known that changes those probabilities the price will move but that's not to say that the markets were incorrectly priced before because the situation was looking different back then. To someone that has a strong view on the likely outcome it might look like the markets were incorrectly priced because it seemed obvious that something was going to happen even if others disagreed.

Thrugelmir

123mat123 said:

How can "already priced in" possibly work - for example, the market can't price in both a Trump and Biden victory, yet either could win.
It could possibly price in a 70% Biden victory and a 30% Trump victory and the direct impact either could have (complex) , but in that case it would be wrong whoever won!
An arguement can be made for "staying in" the market - or "getting out" temporarily, but unless someone has one of these mystical crystal balls future events cannot be factored in...

Market just want certainty. No doubt the S&P 500 will bounce back once there's a definitive outcome.  Longer term a Biden win is going to less favourable to Corporate USA. 

MaxiRobriguez

Thrugelmir said:

123mat123 said:

How can "already priced in" possibly work - for example, the market can't price in both a Trump and Biden victory, yet either could win.
It could possibly price in a 70% Biden victory and a 30% Trump victory and the direct impact either could have (complex) , but in that case it would be wrong whoever won!
An arguement can be made for "staying in" the market - or "getting out" temporarily, but unless someone has one of these mystical crystal balls future events cannot be factored in...

Longer term a Biden win is going to less favourable to Corporate USA. 

Surely that depends on what a Trump second term would actually look like? If he holds onto power despite a Biden win through intimidation and unrest quelling and then proceeds with his trade war on warp speed then arguably corporate USA may have preferred a different outcome.

For me, Corporate USA doesn't really have anything to worry about. Both parties support capitalism and whilst one may offer more tax cuts, the other may offer more stability. Swings and roundabouts.

Thrugelmir

Sailtheworld said:

Michael121 said:

Sailtheworld said:

Thrugelmir said:

Alexland said:

Thrugelmir said:

No one. Vanguard creates or cancels units accordingly.  As a market participant you helped push the market prices of the underlying stocks higher. 

Not quite the ETF units that Sailtheworld purchased were probably from a market maker's warehouse and only occasionally would the market maker swap a basket of assets with Vanguard for new ETF units. It won't be happening dynamically with each market order. It is possible some or all of the ETF units may have come from someone else selling them to the market maker.

Both March and April saw an extremely high volume of unit trade. If activity is correlated to the broader markets this would suggest net purchasing. 

New share creation is probably very small compared to shares outstanding and it's the capital direction that's important rather than volume. VWRL has attracted capital since launch so institutional investors have consistently been buying the underlying assets since then.

Most trading though will simply be transfer of shares from one holder to another via a broker on the open market.

Im confused what are you all talking about here, buying shares from etf or units from vanguard, whats the difference, are you all saying it was cheaper to buy an etf if you picked up the shares directly from someone selling? 

Another poster said I didn't buy them off anyone as they were simply created via new units. ETFs are shares not units so we had a meander down a rabbit hole.

Technically shares represent units of stock.  Easy enough to find trading volumes if one bothers to research. 

Thrugelmir

MaxiRobriguez said:

Thrugelmir said:

123mat123 said:

How can "already priced in" possibly work - for example, the market can't price in both a Trump and Biden victory, yet either could win.
It could possibly price in a 70% Biden victory and a 30% Trump victory and the direct impact either could have (complex) , but in that case it would be wrong whoever won!
An arguement can be made for "staying in" the market - or "getting out" temporarily, but unless someone has one of these mystical crystal balls future events cannot be factored in...

Longer term a Biden win is going to less favourable to Corporate USA. 

Surely that depends on what a Trump second term would actually look like? If he holds onto power despite a Biden win through intimidation and unrest quelling and then proceeds with his trade war on warp speed then arguably corporate USA may have preferred a different outcome.

For me, Corporate USA doesn't really have anything to worry about. Both parties support capitalism and whilst one may offer more tax cuts, the other may offer more stability. Swings and roundabouts.

Biden will be looking at tax rises. Trump has reduced corporation tax from 28% to 19% during his tenure.  Though the planned cut to 17% this year was postponed. 

bowlhead99

123mat123 said:

How can "already priced in" possibly work - for example, the market can't price in both a Trump and Biden victory, yet either could win.
It could possibly price in a 70% Biden victory and a 30% Trump victory and the direct impact either could have (complex) , but in that case it would be wrong whoever won!
An arguement can be made for "staying in" the market - or "getting out" temporarily, but unless someone has one of these mystical crystal balls future events cannot be factored in...

When we say 'the market' we really mean the weighted average 'vote' of the representatives of the various tens of trillions of dollars of investment value, but essentially the market 'prices in' its best guess of the outcome - e.g. as you say it will form a view of the probability of the various outcomes, and then consider the scenarios that could transpire.

For example it might think that the likelihood of the outcome is 70:30, but that doesn't mean the price will move to that position exactly 70/100ths of the way between where it would be if the two potential outcomes had concluded, just because of the way things are finely balanced across markets and the potential outcome is complex even if the victor was known. For example the best estimate of what result will be announced might be 70:30 based on the polls and the bookmakers, but some participants might but prefer to position relatively closer to the place that threatens to give them a negative outcome - whether that's the 70% chance or the 30% chance - to protect what they have; though no doubt others will be optimistic and aggressively loading up on stocks that would be winners if the 'most likely' thing happens. The pricing of whole indexes, just like individual stocks, is simply a tug of war.

As we as individuals investing in a stock or an index can't move the market, all we can do is consider what the potential upside and downside movement might be from the current position and whether we are happy to participate in that movement as it unfolds.

What is clear is that if it is an event with a binary outcome (e.g. a race with two winners and no draw allowed) then the market will have to reflect something between one extreme and the other, which means it will definitely move when the outcome is known. As such, it was 'wrong whoever won!' - as you put it- but the position the market was sitting at while waiting for the outcome was a considered choice based on an estimated likelihood of a risk or reward occuring and what it would mean for the market participants. A 'best guess' of where it should be sitting while waiting for the next piece of information. And that point might not reflect the exact '70:30' point between potential extremes despite academics pointing to polling saying (e.g.) 70:30 is the chance of the two outcomes.

The market is already something that can jerk up and down from its current position at any time, and long term investors are generally happy with playing that game, but elections (just like Brexit referenda or Covid response reports) can be a bit polarising and are hyped in advance as something that could cause a spike one way or another for a particular day / week / quarter or year, and so some people will inevitably feel they should micromanage their portfolio to 'navigate' the event rather than just ride the market rollercoaster and see where it takes them next week.  Not necessarily logical to focus on having an opinion on the market's assessment of some events and not others, but then humans are not always rational when someone tells them it will make a material difference to their life savings if they can 'call it right'.

Obviously the idea that it's a binary bet is itself a simplification, as the outcome could be Biden winning with the House and Senate giving a broad mandate to do whatever he wants, vs winning with just the House on his side where the republicans can still squash what the Democrats want to do, vs Trump winning just the senate or just the house or both the senate and the house. And the outcome might be known and accepted when markets open on Wednesday vs unstable and pending a challenge or further counting etc etc.  So nothing is quite black and white.

Most investors will just keep on holding their portfolios as they are until the 'noise' is passed.

Sailtheworld

Thrugelmir said:

Sailtheworld said:

Michael121 said:

Sailtheworld said:

Thrugelmir said:

Alexland said:

Thrugelmir said:

No one. Vanguard creates or cancels units accordingly.  As a market participant you helped push the market prices of the underlying stocks higher. 

Not quite the ETF units that Sailtheworld purchased were probably from a market maker's warehouse and only occasionally would the market maker swap a basket of assets with Vanguard for new ETF units. It won't be happening dynamically with each market order. It is possible some or all of the ETF units may have come from someone else selling them to the market maker.

Both March and April saw an extremely high volume of unit trade. If activity is correlated to the broader markets this would suggest net purchasing. 

New share creation is probably very small compared to shares outstanding and it's the capital direction that's important rather than volume. VWRL has attracted capital since launch so institutional investors have consistently been buying the underlying assets since then.

Most trading though will simply be transfer of shares from one holder to another via a broker on the open market.

Im confused what are you all talking about here, buying shares from etf or units from vanguard, whats the difference, are you all saying it was cheaper to buy an etf if you picked up the shares directly from someone selling? 

Another poster said I didn't buy them off anyone as they were simply created via new units. ETFs are shares not units so we had a meander down a rabbit hole.

Technically shares represent units of stock.  Easy enough to find trading volumes if one bothers to research. 

Technically yes. Not sure that's the context in which you were using the word unit but I'll take your word for it.

itwasntme001

In the short term, much will depend on the amount of fiscal spending and timing of it.  Which itself will highly depend on who controls the senate post election.

I wouldn't really want to bet either way on this.  Better to take advantage of the rally we had and do some rebalancing (I have) for long term positioning.