3 ms·

I do wonder when some unforeseen 2008 like crash someone crashes ETFs. I can't really see how it would happen and that I suppose is part of the fun.

sidewndr46 8mo ago
Unless we're just talking about regular embezzlement of funds, how do you crash an ETF? I'm talking about broad index funds. Not stuff like ARKK
- groundzeros2015 8mo ago
  It has happened many times throughout the 20th century. It requires mass fear so many people withdraw at the same time.
  - sidewndr46 8mo ago
    Pretty sure the first ETF was from around 1993, so I'm not sure how it is possible to happen "many times throughout the 20th century"
    - triceratops 8mo ago
      Index crashes have happened many times in the 20th and 21st centuries. The fact that index ETFs didn't exist for most of that period isn't relevant. If they had existed they would've crashed because they follow indices.
      - epistasis 8mo ago
        The point is that the ETF tracks its index, so what does it even mean to say ETF crash? Isn't that just the tracked stocks crashing? The ETF has little to do with it. But if there is some other risk that's warrants the ETF label, that's very very interesting and should be discussed! It would be little known or novel ETF mechanics.
        triceratops 8mo ago
        > so what does it even mean to say ETF crash ? Isn't that just the tracked stocks crashing? Yes. I've learned to differentiate between the words people use and what they actually mean, rather than being literal. Since index ETFs make up a large portion of people's investments they fear the value of those ETFs tanking. Obviously this is due to the underlying stocks' prices dropping This has happened many times in the past, most (in)famously in 1929.
        epistasis 8mo ago
        Well that's the crux of it, isn't it? How do you know what they really mean, if not through the words? You have to impose a mental model on the speaker, which we of course do anyways. Saying ETF crash specifically sounds like there is an idea there, and lots of people talk about thinking that ETFs specifically have problems that owning stocks directly would not have, so in my mind the model is that the speaker has an idea about how ETFs cause the crash through hidden risk. And since hidden risk is behind most crashes, it's definitely an interesting direction to ask about.
        groundzeros2015 8mo ago
        If you own an ETF and the underlying assets crash the ETF value has gone down. Additional failure modes exist due to the mechanics of the ETF, but from context we can tell the original comment was about risks to the large amount of money invested in ETFs
    - groundzeros2015 8mo ago
      ETFs are a convenience tool for buying a bundle of assets. those assets exist independently. Other ways of owning bundles of assets existed before.
- justin66 8mo ago
  > how do you crash an ETF? I'm talking about broad index funds. Not stuff like ARKK Any ETF's share value can "crash" if there are not enough buyers to purchase shares when they are trading below NAV (net asset value). It's worth a quick google to see what "market makers" or "authorized participants" do, but the thing to keep in mind is: if the market is kind of exploding in some major ways (think 2008) an ETF might not have a lot of buyers, even if its market price is well below its net asset value.
  - sidewndr46 8mo ago
    But why would that happen? Let's say an ETF normally trades at 99% of it's NAV. Suddenly it "crashes" and only trades at 97.2% after some bad news. Bob in accounting embezzled millions. It's gone, Bob spent it all at the strip club. Wouldn't some investor decide to just net the approximately ~1.8% by increasing demand and buying it up? After all, Bob embezzled millions. Not the billions that larger ETFs control. Unless you're proposing some weird industry wide boycott of Vanguard or something. In that case the only thing stock traders are going to accomplish is destruction of every publicly traded asset they hold as market confidence in retail traders slowly slips downwards.
    - justin66 8mo ago
      > Wouldn't some investor decide to just net the approximately ~1.8% by increasing demand and buying it up? When it comes to individual investors, sure, in a situation where everything is going crazy in the markets some will buy and some will be happy to sell, provided the exchange doesn't halt trading temporarily in response to an extreme drop in share prices. The problem comes when the large market makers who are meant to really be on the ball and buy large blocks of shares quickly are suddenly worried about their own survival, or at least that's the way I remember a few of the chaotic days of 2008. I knew a few people who made money buying bond ETFs at a discount to NAV.
- patall 8mo ago
  I have no idea how one would crash an ETF but I do wonder if someone could manipulate an index. I.e by somehow suggesting a larger fraction of free floating stock so that the index weights the stock higher than its actual share. That should create increased demand for that particular stock (fund companies buy it more) and thus raise its value over what the market would assign normally.
heisgone 8mo ago
I invite you to watch Mike Green videos. In short, the current market rely on inflow of money to substain itself. P/E ratio can't increase forever. There will be a tipping point and if most of the money is invested based on an algorithm, it can unravel rapidly. https://www.youtube.com/watch?v=dkL4oz8iEg4 https://www.youtube.com/watch?v=dkL4oz8iEg4
nradov 8mo ago
Most pension funds aren't heavily invested in ETFs (or other mutual funds). They're usually large enough that it makes sense to invest directly in the underlying securities. Everyone has a prediction about what will cause the next major financial panic. Personally I think it will be triggered by property and casualty insurers who have purchased a lot of bonds where the credit ratings don't accurately reflect the true default risk. But who knows, it could be something else.
anonporridge 8mo ago
A US wealth/unrealized gains tax might trigger it, because it would likely create a cascade of forced selling, with the proceeds of sales getting burned as tax revenue for entitlement programs or debt payments rather than reinvested.
- triceratops 8mo ago
  What if wealth taxes could be paid with shares instead of cash? And the shares went into a sovereign wealth fund? No forced selling, no crash.
  - terminalshort 8mo ago
    What if the government owned all the corporations?
    - triceratops 8mo ago
      I don't know. You tell me. I don't think that would happen for the same reason that there are income taxes and yet the government doesn't have every last dollar. Sovereign wealth funds sell assets too. If you think sovereign wealth funds are communism, someone should tell Alaska.

sidewndr46 8mo ago

Unless we're just talking about regular embezzlement of funds, how do you crash an ETF? I'm talking about broad index funds. Not stuff like ARKK

groundzeros2015 8mo ago
It has happened many times throughout the 20th century. It requires mass fear so many people withdraw at the same time.
- sidewndr46 8mo ago
  Pretty sure the first ETF was from around 1993, so I'm not sure how it is possible to happen "many times throughout the 20th century"
  - triceratops 8mo ago
    Index crashes have happened many times in the 20th and 21st centuries. The fact that index ETFs didn't exist for most of that period isn't relevant. If they had existed they would've crashed because they follow indices.
    - epistasis 8mo ago
      The point is that the ETF tracks its index, so what does it even mean to say ETF crash? Isn't that just the tracked stocks crashing? The ETF has little to do with it. But if there is some other risk that's warrants the ETF label, that's very very interesting and should be discussed! It would be little known or novel ETF mechanics.
      - triceratops 8mo ago
        > so what does it even mean to say ETF crash ? Isn't that just the tracked stocks crashing? Yes. I've learned to differentiate between the words people use and what they actually mean, rather than being literal. Since index ETFs make up a large portion of people's investments they fear the value of those ETFs tanking. Obviously this is due to the underlying stocks' prices dropping This has happened many times in the past, most (in)famously in 1929.
        epistasis 8mo ago
        Well that's the crux of it, isn't it? How do you know what they really mean, if not through the words? You have to impose a mental model on the speaker, which we of course do anyways. Saying ETF crash specifically sounds like there is an idea there, and lots of people talk about thinking that ETFs specifically have problems that owning stocks directly would not have, so in my mind the model is that the speaker has an idea about how ETFs cause the crash through hidden risk. And since hidden risk is behind most crashes, it's definitely an interesting direction to ask about.
        groundzeros2015 8mo ago
        If you own an ETF and the underlying assets crash the ETF value has gone down. Additional failure modes exist due to the mechanics of the ETF, but from context we can tell the original comment was about risks to the large amount of money invested in ETFs
  - groundzeros2015 8mo ago
    ETFs are a convenience tool for buying a bundle of assets. those assets exist independently. Other ways of owning bundles of assets existed before.
justin66 8mo ago
> how do you crash an ETF? I'm talking about broad index funds. Not stuff like ARKK Any ETF's share value can "crash" if there are not enough buyers to purchase shares when they are trading below NAV (net asset value). It's worth a quick google to see what "market makers" or "authorized participants" do, but the thing to keep in mind is: if the market is kind of exploding in some major ways (think 2008) an ETF might not have a lot of buyers, even if its market price is well below its net asset value.
- sidewndr46 8mo ago
  But why would that happen? Let's say an ETF normally trades at 99% of it's NAV. Suddenly it "crashes" and only trades at 97.2% after some bad news. Bob in accounting embezzled millions. It's gone, Bob spent it all at the strip club. Wouldn't some investor decide to just net the approximately ~1.8% by increasing demand and buying it up? After all, Bob embezzled millions. Not the billions that larger ETFs control. Unless you're proposing some weird industry wide boycott of Vanguard or something. In that case the only thing stock traders are going to accomplish is destruction of every publicly traded asset they hold as market confidence in retail traders slowly slips downwards.
  - justin66 8mo ago
    > Wouldn't some investor decide to just net the approximately ~1.8% by increasing demand and buying it up? When it comes to individual investors, sure, in a situation where everything is going crazy in the markets some will buy and some will be happy to sell, provided the exchange doesn't halt trading temporarily in response to an extreme drop in share prices. The problem comes when the large market makers who are meant to really be on the ball and buy large blocks of shares quickly are suddenly worried about their own survival, or at least that's the way I remember a few of the chaotic days of 2008. I knew a few people who made money buying bond ETFs at a discount to NAV.
patall 8mo ago
I have no idea how one would crash an ETF but I do wonder if someone could manipulate an index. I.e by somehow suggesting a larger fraction of free floating stock so that the index weights the stock higher than its actual share. That should create increased demand for that particular stock (fund companies buy it more) and thus raise its value over what the market would assign normally.

heisgone 8mo ago

I invite you to watch Mike Green videos. In short, the current market rely on inflow of money to substain itself. P/E ratio can't increase forever. There will be a tipping point and if most of the money is invested based on an algorithm, it can unravel rapidly. https://www.youtube.com/watch?v=dkL4oz8iEg4 https://www.youtube.com/watch?v=dkL4oz8iEg4

nradov 8mo ago

Most pension funds aren't heavily invested in ETFs (or other mutual funds). They're usually large enough that it makes sense to invest directly in the underlying securities. Everyone has a prediction about what will cause the next major financial panic. Personally I think it will be triggered by property and casualty insurers who have purchased a lot of bonds where the credit ratings don't accurately reflect the true default risk. But who knows, it could be something else.

anonporridge 8mo ago

A US wealth/unrealized gains tax might trigger it, because it would likely create a cascade of forced selling, with the proceeds of sales getting burned as tax revenue for entitlement programs or debt payments rather than reinvested.

triceratops 8mo ago
What if wealth taxes could be paid with shares instead of cash? And the shares went into a sovereign wealth fund? No forced selling, no crash.
- terminalshort 8mo ago
  What if the government owned all the corporations?
  - triceratops 8mo ago
    I don't know. You tell me. I don't think that would happen for the same reason that there are income taxes and yet the government doesn't have every last dollar. Sovereign wealth funds sell assets too. If you think sovereign wealth funds are communism, someone should tell Alaska.