Thursday, May 6, 2010

Lost a Cool $20 Million Today ...

I was in the midst of a compelling analysis to compare the buy-and-hold versus active trading stock portfolio management strategies, when what to my wondering eyes should appear on my trading screen ...

Portfolio Value: ($20,999,999.01)

Oops I know the market's down today and Greece is in the midst of a big fat riot, but ... but ... $20 million? Cha ching. Negative $20 million?

I could not even fathom the scenarios which might have caused me to not only lose every penny of shareholder equity, but go into a financial bottomless pit. Could I have fat fingered some eight digits when I wasn't even trading at the time?

I realized from this point forward I'd be living a life of free Einstein bagels and schmears ... forever.

It's one thing to recoup a few hundred dollars in bad trades, but $20 million? Then the trading platform shut down.

I don't really have a vocab like a sailor either in speaking or print, but just the same, I'm surprised I didn't say a few choice words. Well, this is probably because I couldn't say any words.

I was on the phone to my brokerage to find out if someone had broken into my account or ... what. In the haste of the moment, I recalled, not fondly, the time when the voice response system chicklette for my cell phone company informed me that my balance was over $1 million. That event, no doubt, prepared me for today. And then it hit me ... Mercury is in retrograde (had to throw this in for the astrology junkies). May 11th can't come too quickly.

While holding on the phone, I emailed my brother and advised of my plight. After a reasonably short wait of under ten minutes, I spoke with a representative. I learned that apparently, right around the time when my brokerage account went into convulsions, a trader or a trading glitch traded at 1000x the expected amount, so a $16 million trade became $16 billion. Whether a financial institution relies in manual input or automated system entries, ... well, I'm not going to give a brain dump on operational risk but suffice it to say accidents happen. Where were the controls? testing? monitoring? etc?

The impact of this "glitch" on the broader market was immediate, and the Dow dropped by a whopping 998.5 points, taking every stock in the market correspondingly up or down depending on the degree to which it correlated with or against the Dow. And the New York Stock Exchange realized a circuit outage. I have to wonder how many buy and sell orders were executed during the half hour or so when things were unbelievably haywire, and how long all of that may take to unravel. Eventually, by day's end, the Dow settled at a drop of 347.80. The charts will remember this day for a long time.


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