ADDvantage Technologies Group, Inc. (NASDAQ:AEY): 9,978
Gravity Co., LTD. (ADR) (NASDAQ:GRVY): 20,003
Retail Holdings NV (OTCMKTS:RHDGF): 363
VERIS GOLD (OTCMKTS:YNGFF): 21,209
IEH Corporation (OTCMKTS:IEHC): 2,402
These are my illiquid holdings and their respective 30 day average volume.
Scary huh? Compare that to something like this.
Apple Inc. (NASDAQ:AAPL): 16.84M
But I managed to buy all of them for the full position I wanted despite the low volume. So if you buy small caps or just fear buying illiquid stocks because your money will be “stuck”, read on.
Inverting the Typical Line of Thought
Let’s do a Charlie Munger and turn the definition of illiquid stocks upside down for a sec.
Yes they are.
To Warren Buffett they are. In fact, every stock is illiquid to him. For big buyers, all stocks are illiquid so there is no reason to believe in the myth that your money is lost because you can’t take it out. If you manage to buy a hidden gem and the price starts to creep up, people notice and so does the volume.
With Gravity Co., LTD. (ADR) (NASDAQ:GRVY), as anticipation grew for the release of RO2, a horde of people suddenly bid the price up.
I could have sold, but I didn’t. Stupid me, but that’s a prior mistake.
Illiquid Stocks Are Not as Illiquid as You Think
Geoff Gannon has written a lot on how to buy illiquid shares, and that’s where the idea for this post came up, so I’ll be using some of the ideas that he has brought up in the past. Say you wanted to buy into ADDvantage Technologies Group, Inc. (NASDAQ:AEY).
The last closing price is $2.30 with an average monthly volume of 10,000 shares. (I’m rounding off numbers to make it easier to follow)
This means that in an average month, $23,000 worth of stock is traded. $23,000 in a month is more than enough to build a position around. The only problem is that you aren’t the only one waiting to buy the stock. There are other smart people like yourself that knows value when they see it.
The trick is to be patient.
Put in a limit order, set it to Good Til Canceled and then forget about it. Don’t bid up the price and be the greater fool that pays the higher price. As you can see below, illiquid stocks don’t move in a linear fashion.
Set your limit price and forget it, because there is a good chance that you will get your fill.
Ben Graham Already Taught You About Mr Market
Even for low volume stocks like ADDvantage Technologies Group, Inc. (NASDAQ:AEY), there is enough volume for most investors to take a full position. Remember that the public market is like a real market.
There are buyers and sellers.
Somebody like you is on the other end, holding out their goods (the shares) for sale. Just like how you would haggle at a real market, you should do the same. Don’t accept the asking price.
Put your bid out there and if the seller is desperate and wants to clear his goods, your bid will get filled.