Some are blaming high-frequency trading machines that can execute multiple trades in milliseconds. Do we have that capability? (“No – we are the victims.”) Other variants of this spin the predictable anti-evil-genius-trader stuff, claiming that the little guy got screwed yet again.
But did he?
What happened to you if you held Accenture stock and it went down to a fraction of a penny for a few minutes? Nothing at all, unless you sold it then.
The basic problem is that people who don’t understand the market at all will place market orders which says “sell this thing to whomever will pay the most for it, right now!”. Guess what? If everyone does that at the same time, e.g. on stop loss triggers, then eventually over the really short haul no one is left who wants to buy any. It takes some time – at least a minute or so – for someone else to come in and day “hey 1 cent is a really good buy maybe I’ll pay 2 cents!”. And so forth until it comes back to market value.
So what is the problem? Computers? Or people? How bout you hang on for a god damned minute to your stock instead of panic selling if you think it is worth more than 1 cent? Better yet, why don’t you buy some at the incredible bargain of less than 1 penny?
Classic, classic case of trying to blame the boogie man for our own stupidity.
The lesson today is that if an anonymous button-pusher can hit the wrong key, a backbone of the developed world economy can crater. That doesn’t strike you as an economic and security weakness?
It is what happened after the wrong key got hit that is what happened, assuming the wrong key even got hit. No one hits the wrong key and sells every stock on the market down to 0, that isn’t really how it works.
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p>If someone hit the wrong key and caused one valuable stock to go to 1 cent per share, then lucky you, buy it!
We need a stable financial system. A secure financial system. This clearly demonstrates that we don’t have that. Although your eagerness to personally profit from a potential crisis is quintessentially conservative, I don’t like the idea of a slipped finger causing a gut shot to our economy. A simple and easy errors shouldn’t have devastating consequences.
I made nothing on the crash, but I didn’t lose anything either because I didn’t sell stocks at 1 cent. Did you?
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p>If you step back and think about it you’ll see that no one was harmed except by their own hand, and if anything a great opportunity was created for a very short time.
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p>The idea that a “stable financial system” would somehow disallow people to buy or sell stocks for whatever price that they see fit is – to me – not really a financial system at all.
Who sold them at that low a price? And why?
http://www.boston.com/business…
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p>Excuse me? What could be more ridiculous!
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p>Do Boston Beer Co have some right to a high stock price? Like people aren’t allowed to all sell it for one penny at the moment when no one wants to buy it for more?
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p>Better yet if it is really worth $60, as the executives must surely realize, why not buy it at its low? By my math that is a 6000% return in less than a minute, what on Earth would you possibly be complaining about?
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p>I know what would happen to your money if you sold a $60 stock for 1 penny, but why would you do it? That trade makes no sense at all and if you do it, it is your own fault. On the other hand, if you know enough about the company to buy the stock in the first place then you should buy it at 1 penny and ride it the other way.
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p>Then you could be a limousine liberal and/or donate it all to MoveOn!
Do[es] Boston Beer Co have some right to a high stock price? No, obviously not.
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p>But just as obviously, Boston Beer Co. will be inconvenienced in its ability to raise capital if its stock price is absurdly low. The negative effect on their business merits management’s alarm and concern.
Donations? Bill Halter is the cause of the day for the Left blogosphere and, to a lesser extent, Open Left’s fundraiser.
…a two trillion dollar swing (one trillion down, then one trillion up) in the DOW in 20 minutes is a “non-issue”?
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p>So Mr. Free Marketer, can you tell me what market factors occurred in these 20 minutes that determined how some companies went from 1 billion valuations to a couple of million dollars and then back to 1 billion? Does this represent the “rational market forces” that should be driving our system?
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p>As for hanging onto your stock instead of panicking, again your so wrong. Fortunately I don’t have any automatic sell orders on my stocks (well, I only own one stock, I’m pretty much on the sidelines, in that I have no faith in the current system). But many people do and the crazy swing kicked in trades that lost people money.
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p>For example, if I owned 100 shares of Boston Beer Works at $60, I have the option (either through my broker or my own etrade account) to automatically sell the stock if it goes below $30. So on Thursday, I could be at work, paying no attention to the stock market and I would have lost $3,000 because a computer sold my stock. Now you can say it was my fault for placing the automatic sell order. But I placed that order in case Boston Beer Works had some kind of unanticipated disaster (like all their beer was contaminated and everything was recalled) and prevent a total loss. That is not what happened Thursday…nothing materially changed in the operation of Boston Beer Works, yet its value plunged to a fraction of it’s worth in 20 minutes.
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p>At the end of the day, there is only one thing that keeps the financial markets together and that is TRUST. Trust that system works in a rational, logical way. That is a fairly conservative principle, yet that is exactly what we don’t have in the system today.
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p>And as evidence that even the stock market officials don’t even trust their own system, in the end of the article you site, stock exchange officials canceled thousands of trades representing millions of shares during this 20 minute period. Even they didn’t trust the system.
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p>To call this a “non-issue” suggest you are completely ignorant of what makes the financial system work.
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p>… it is, “don’t do that”. Or at least automatically sell but only over some other certain price.
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p>Computers will do whatever you tell them to do, Pogo. If the price dropped below your threshold for any other reason (which prices do, all the time) and no one was waiting around to buy at a price you liked then you’d be in the same boat.
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p>I admit that this is a new lesson that people should be learning if they haven’t already. If we focus on calling in the waaambulance, we might miss it.
…don’t trust that the financial system is based on any kind of rational behavior, but that point seems to be going right over your head.
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p>It is rationale to put a floor price on a stock and have a computer sell it for me if some unforeseen event occurs that impacts the companies value and I’m not available to react (like a massive product recall). But what happened Thursday–a value swing of 5000% down and back up again in 20 minutes–had no basis of a rational market, something that a supposedly libertarian person like yourself hold sacred.
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p>Defending what happened on Thursday reinforces the lesson I’ve already learned about today’s stock markets and therefore I didn’t get hurt one bit by it: The markets are not controlled by rational factors and I’d have as much luck playing the lottery or going to Foxwoods.
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p>I remember the day I learned that lesson. It was in Sept of 2008 when I asked my financial adviser why both my aggressive and defensive (international bonds and gold funds) were getting hammered–when our strategy was that one was supposed to offset the other. He said, “All I can do is look at the research and data and make decisions based that”. It was a perfectly reasonable answer, yet the market was acting completely irrational…I instructed him to sell everything.
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p>Irrational events like Thursday will only lesson investor confidence and that will be vary bad for the economy.
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p>All you and your libertarian friends can do is spout “Whaaambulance” nonsense as people loss confidence in the very market system you claim to defend. But you don’t have a clue as that.
all this “you don’t have a clue” stuff, while you’re the one who ran away from the market with your tail between your legs.
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p>The market is not rational at all times, but it is generally self correcting. So if you have confidence in the value of what you own, there is really nothing to worry about. Then again if you are relying on your broker’s research and then exiting the market entirely in bewilderment, I’m not sure you should be lecturing people on whether or not they have a clue. Based solely on the fact that I have managed to perform (I presume) better than the combined forces of you and your broker, maybe it is you who ought to try and do some learning from me.
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p>Oh, and
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p>Sorry, how does anything go down 5000%? Just don’t be opining on who is clueless, ok?
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it becomes a four person operation.
SNL