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The August 2015 Flash Crash Through The Eyes Of Retail Investors

With professionals proclaiming yesterday's meltdown "historic," and generously telling investors "don't try to overthink what you're seeing," it is clear that the real impact of the carnage wrought by a combination of Fed-indiced crowded trades and HFT illiquidity-providers is yet to be fully appreciated. As one retail investor exclaimed, yesterday's open "was a life-changing 20 minutes."

When OPM (Other People's Money) is at stake (or even better, 'virtual' money), it is easy to be glib and trot out old Wall Street adages to comfort those with real money at risk such as "stay the course," of "what this is not is a repeat of 2008."

Of course, as The Wall Street Journal reports, while institutional and individual investors alike tried to navigate the wild movements in stock prices, Financial advisers, almost unanimously, have cautioned clients not to panic...

Richard Madigan, chief investment officer of J.P. Morgan Chase & Co.'s private bank, called an emergency investment committee meeting following the morning drop in U.S. stocks. The executives spent more than an hour discussing what they were seeing and what had changed. "Some of this is knowing what you don’t know," Mr. Madigan said. "And not trying to overthink what we’re seeing but just try to understand what is real, fundamental and deserved... what may create opportunities."

 

“What this is not is a repeat of 2008,“ Chicago financial adviser Steven Dudash wrote to clients Monday morning. The president of IHT Wealth Management, which has about $650 million of assets under management, Mr. Dudash said he spent most of the day talking to clients and trying to calm their nerves.

 

Mr. McNabb said Vanguard was planning to publish several investor communications on its website, including a piece that the firm has largely recycled from the market volatility just ahead of the 2008 financial crisis. The article, he said, would make several points, including urging investors not to panic, not to abandon stocks and bonds and not to make abrupt changes in their portfolio construction. “I still believe that these are the right points now,” Mr. McNabb said.

Still, the risk is that the market turmoil could spill over into the U.S. economy if the selloff persists, and there was real pain felt in the real world...among professionals...

“Meltdown was the only word that can be used to describe price action in equities,” said ANZ Bank Senior Economist Mark Smith.

 

“The latest developments are driven by sentiment and positioning in financial markets without much relation to underlying economic fundamentals at this stage,” said Liam Spillane, head of emerging-market debt at Aviva Investors, which oversees more than $385 billion in assets. “But those are not mutually exclusive. They can feed on one another.”

 

“Markets are on their own now; the Fed has already deployed its arsenal,” said Ashwin Alankar, who helps manage about $1 billion as global head of asset allocation at asset manager Janus Capital Group Inc. “All the central banks can do today is not withdraw liquidity.”

and mom-and-pop...

The selloff overwhelmed some online brokerage firms as investors tried to access trading accounts amid a plunge in the markets. Clients at TD Ameritrade Holding Corp. and Scottrade Inc. reported problems logging on to their accounts and executing trades. Scottrade experienced a 230% spike in trading volume on Monday morning, a spokeswoman said.

 

Jan Rothbauer and her husband, Bill, of Poland, Ohio, decided Friday—when the market was down about 300 points—to tell their financial adviser to sell most of their stock. The couple cut their stockholdings from about 50% to less than 5%, fearing they would suffer steeper losses as they prepared to retire.

 

“I felt this was on a roll now and not going to stop for a while, so it’s just time to move,” Ms. Rothbauer said.

 

To Christina Elizabeth, it was “a life-changing 20 minutes.”

 

The painter from Phoenix was one of millions of Americans who watched in horror as the U.S. stock market sank like a boulder Monday morning, a plunge that topped more than 1,000 points before many investors had finished their breakfast cereal.

 

Ms. Elizabeth, 31 years old, tried in vain to sell at least some of the shares in her TD Ameritrade Holding Corp. account, but was unable to log in amid a crush of others rushing to do the same. By the time she was able to access the site, she was down $6,000.

 

“It might not be a lot of money to some people,” said Ms. Elizabeth, “but as a young artist trying to get somewhere, this hurt a lot.”

And finally perhaps some genuine reflection...

Bill Stone, chief investment strategist at PNC Financial Services Group Inc.’s asset-management group, says the Monday morning call he generally holds with financial advisers had more than 300 participants, or 50% more than usual. He said more clients have been contacting advisers, concerned about how the latest market losses could be a repeat of 2008.

 

“The swiftness of the decline brings back bad memories of the financial crisis,” he said. “I think we’re going to be haunted by those memories for quite a while in the sense that people automatically ask: ‘Is this the start of that again?’”

Isn't it amazing how simple and confidently stated thge BTFD mentality is until that dip disproves itself with Dip (with a capital 'D')... Perhaps it is worth paying attention to the financial advisors that spend less time on TV and more time protecting wealth in their clients' portfolios... or for mom-and-pop, ignoring the rah-rah cheerleaders ever-present in mainstream media business press...

Maybe - after today's record reversal, those purveyors of OPM will be a little more careful with their advice!!