BusyBodyQueen

Sunday, December 23, 2012

Liquidity Risk


The stock market, like life in general, overvalues glitz, glamour and grand promises. It undervalues groundedness, consistency and conservatism.

But one risk that the market seems to price more accurately, or in other words, one risk that the market will reward investors for taking, is liquidity risk. That is the risk of us not being able to cash out any time we want without losing part of our capital.

However, there is a flip side. The flip side is, if we have cash when everyone is trying to raise it, our money will go a long way. If we can provide liquidity when the market most needs it, we shall be amply rewarded.

It is the same with help extended to someone in dire straits. That help will be, most of the time, well-remembered and appreciated and, sometimes, repaid generously.

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