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#303: Managing liquidity risk
“Brought to you by Absa ETFs” Simon Shares
- SARS announces tax must be paid on Bitcoin profits - why is anybody surprised?
- Sagarmatha (JSE code: SGT) listing on Friday, if they tick all the boxes. Some saying they should not be allowed to list but this fails to understand the role the JSE plays. They are regulatory gate keepers, not quality of profitability gate keepers.
- Steinhoff (JSE code: SNH) now under 300c at 226c, well below late 1998 listing - all-time-low and the bad news just continues to drip out.
- ETFs and the cost of the spread.
- Living vs guaranteed annuities.
- Upcoming events;
- JSE Power Hour: Investing in the best of SA Inc.
Homechoice (JSE code: HIL) keeps on putting out great results and cash generation but has almost zero liquidity (30 trades since 6 March and currently no offers to sell on market with last trade at 4700c and buyers at 1226c! This makes it uninvestable in my world as we'd essentially be buying into a quasi private equity arrangement as exiting would be almost (absolutely) impossible. But they did announce in the latest results they plan to improve liquidity and I'll keep an eye on this.
In the excitement of finding a great share we'll often over look the liquidity issue but I remember getting very badly caught in an illiquid stock way back in the day and while I could have held on I panicked and exited at a nasty loss.
Liquidity is not just the spread, which is a cost. But also the amount of volume being traded and we also have to remember that liquidity can disappear very quickly.
So two things to look for.
- What size spread are you having to cross to buy. A 1100c / 1500c is 400c and over 30%. I want spreads as tight as possible and certainly not more than 5% at worse.
- I want average daily value traded to be at least 30x the size I am buying so even if it dries up I can still get out without too much pain.
For traders liquidity even more important an I want spreads less than 1% and value traded 100x my trade size. This is because I want to have no impact when buying or selling (or as small as possible because there is never no impact) and I need the liquidity for very quick and efficient exits.
Last important point. Liquidity in terms of volume is not an issue for ETFs as the market maker ensures that they will have a bid and offer either side of fair value at all times. So while the ETF may not be trading it has the capacity to trade in larger volumes if required.
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- Sign up for email alerts as a new show goes live
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JSE – The JSE is a registered trademark of the JSE Limited.
JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
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By www.JustOneLap.com“Brought to you by Absa ETFs” Simon Shares
- SARS announces tax must be paid on Bitcoin profits - why is anybody surprised?
- Sagarmatha (JSE code: SGT) listing on Friday, if they tick all the boxes. Some saying they should not be allowed to list but this fails to understand the role the JSE plays. They are regulatory gate keepers, not quality of profitability gate keepers.
- Steinhoff (JSE code: SNH) now under 300c at 226c, well below late 1998 listing - all-time-low and the bad news just continues to drip out.
- ETFs and the cost of the spread.
- Living vs guaranteed annuities.
- Upcoming events;
- JSE Power Hour: Investing in the best of SA Inc.
Homechoice (JSE code: HIL) keeps on putting out great results and cash generation but has almost zero liquidity (30 trades since 6 March and currently no offers to sell on market with last trade at 4700c and buyers at 1226c! This makes it uninvestable in my world as we'd essentially be buying into a quasi private equity arrangement as exiting would be almost (absolutely) impossible. But they did announce in the latest results they plan to improve liquidity and I'll keep an eye on this.
In the excitement of finding a great share we'll often over look the liquidity issue but I remember getting very badly caught in an illiquid stock way back in the day and while I could have held on I panicked and exited at a nasty loss.
Liquidity is not just the spread, which is a cost. But also the amount of volume being traded and we also have to remember that liquidity can disappear very quickly.
So two things to look for.
- What size spread are you having to cross to buy. A 1100c / 1500c is 400c and over 30%. I want spreads as tight as possible and certainly not more than 5% at worse.
- I want average daily value traded to be at least 30x the size I am buying so even if it dries up I can still get out without too much pain.
For traders liquidity even more important an I want spreads less than 1% and value traded 100x my trade size. This is because I want to have no impact when buying or selling (or as small as possible because there is never no impact) and I need the liquidity for very quick and efficient exits.
Last important point. Liquidity in terms of volume is not an issue for ETFs as the market maker ensures that they will have a bid and offer either side of fair value at all times. So while the ETF may not be trading it has the capacity to trade in larger volumes if required.
- Subscriber to our feed here
- Sign up for email alerts as a new show goes live
- Subscribe or review us in iTunes.
JSE – The JSE is a registered trademark of the JSE Limited.
JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.