• The Liquidity of the Stock Market

  • liquiditycoverWhen selecting for the right business most will look to how liquidity is there in this venture. In all businesses the question is how to manage within the confines of the available cash flow to meet demands. Whether it be a business, real estate there exists a risk versus reward and always looks to future earnings and liquidity in valuation.

    Investing in the stock market means your investments are liquid as long as the portfolio is not tied up in long term assets or ventures that require managing the ups and downs for an extended period. In this case the method of investing is not liquid without inherent risks associated.

    Almost any other capital investment we make in our lifetime requires time and effort to close a deal. Buying rental real estate can take weeks and even months to find a prime property and get a deal closed. Well, buying a business is a long, drawn-out process, too, and you certainly cannot (or should not) just get up one day and decide to sell your company, and then expect a check in the bank by the end of the day.

    Only in the stock market can we place our money instantly at risk, or sell assets because a well-dressed person on TV said the market was going to drop soon.

    The only method of managing market risk and being able to capitalize on liquidity is to follow a proven model of investing where portfolio allocation is strict and emphasized and profits are derived following the guidance of seasoned trading veterans. A logical approach to investing where incremental gains are produced following a view of current market conditions and a seasoned view to selecting high momentum stock breakouts will provide an investor with the necessary tools to build a portfolio and maximize its liquidity when necessary.

    In the business world, no one runs out to buy a company because the price is going up or sell their current company because the price has been falling. Or begins to buy up real estate during a depressed market. But by following a regimented set of seasoned and proven disciplines one can actually grow portfolios beyond what a business or real estate would support and being completely liquid in cash if the markets begin to turn to a decline. Taking advantage of growing your TSFA (Tax Free Savings Account) means that you can contribute up to $5,500 per year and by growing this at a rate of 2-4% per month through investing, means 20-30% annualized growth and complete liquidity throughout. This may sound pie in the sky, but 1-2 trades per week at 1-2% gains that are successful 80% of the time will yield this result.

    It makes so much sense, but this behavior is exactly the opposite of what you’re doing when you take advantage of your highly prized liquidity to buy at tops and sell at bottoms. It’s following a seasoned approach to investing that takes advantage of market moves and also stocks confirming strong momentum. Also it means removing the greed factor, where buys and selling happens at prescribed prices relative to the current market conditions. Stops are also supported as no one will ever be 100% accurate, so understanding with to pull out is key and manages market risk.

    Bottom Line

    Just because we have the ability to buy and sell in the blink of an eye does not mean we should. The liquidity of the stock market tends to make us much less cautious than we should be and much more susceptible to the fear and greed cycles that influence the markets at extremes. But coupled with proven disciplines and a process that keeps us on track offers the best of both worlds.