Speaking of Which...

To contact us Click HERE
Yesterday's post was about no one being able to be correct with every single holding in their portfolio all the time and that occasionally a holding will get blindsided, more correctly the person with the holding gets blindsided.

Right on cue one of the stocks we own for large accounts and the fund we subadvise got crushed. MSCI (MSCI) finished the day down 26.8%, although it had been down a little more earlier in the day, on news that Vanguard will be switching away from MSCI indexes for several traditional funds and several ETFs (22 in all).

It appears as though Vanguard might save a little money on licensing which if correct would allow it to more easily remain competitive with ETF providers like Schwab who are probably willing to operate their ETFs at a loss. The bigger reason might be to allow for differentiation in its Emerging Market ETF (VWO) and iShares Emerging Market ETF (EEM) which for now both use the same index. (thank you IndexUniverse for the above info).

IndexUniverse also devoted quite a few pixels to quotes from people at iShares about doing more business with MSCI. The revenue loss from these Vanguard funds although not de minimis is pretty small and does not merit a 30% decline in the share price (the stock was down that much during the day) in my opinion.

The arc thus far is not a new one. Bad news that catches the market by surprise causes the stock to overreact, the question then is what happens next. One typical path is that after the panic the stock then quickly retraces a meaningful chunk of the decline. If the trading yesterday is the overreaction I believe it was then a snapback as described above seems very plausible. We'll see.

In terms of impact on the portfolio it was quite small. The NAV of the fund we subadvise was down 0.28% yesterday versus lift of 0.09% for the S&P 500. Any client accounts may have been more or less. The rest of the portfolio had a good day coincidentally or the NAV would have had a bigger drop.

This is exactly why I target relatively small weightings for individual stocks. From here the stock will either be a good hold or a bad hold but it is not a realistic concern that the company will cease operations. For now this was merely a bad day for the portfolio but not even that bad. Time will tell whether this was a hiccup or a mistake but the as I write about quite regularly the consequence, if it really turns out to be a mistake will not be ruinous.

As a another follow up from yesterday the 30 for 30 documentary about broker athletes was fascinating. It did get around to Curt Schilling's troubles up to a point but surprisingly gave Lenny Dykstra's story very little time but maybe that one will be an entire mini-series.