illiquid Stocks - Here lies the fortune
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2304
Printed Date: 04/May/2025 at 11:30pm
Topic: illiquid Stocks - Here lies the fortune
Posted By: basant
Subject: illiquid Stocks - Here lies the fortune
Date Posted: 18/Aug/2009 at 12:02pm
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Most foolish comment I have ever heard. Hero Honda traded less then 500 shares in 1996; Infy traded less then 1000 shares in 1995; HFCL, Global tele, DSQ and Satyam traded the most during the tech boom!
One of the signals of unpopularity is illiquidity,the fact that stock is illiquid means that people are not willing to let go and you need a higher price to get the thing off their demat account. ALl things being equal an illiquid stock outperforms a liquid name over the longer term.
Now can someone ask this journalist as to why would a speculator get into an illiquid name? SPeculators love liquidity and mommentum and you cannot get any of these in illiquid names.
Now if you have bought an absolute dud then the problem is with the stock selection and not with illiquidity. Therefore an illiquid (low quality) stock with an adventurous investor makes for extended risk!
in 2003 one could not buy 500 shares of Trent without bidding up the price 4%; he cannot buy it even today and Trent has underperformed
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Replies:
Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 1:00pm
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1. The journo's email address is at the bottom of the article. Perhaps, he may respond if Basantji contacts him. 2. While Basantji said is logical, but there is the issue of why stock exchanges and the regulator caution against illiquid stocks. I will provide a link again from the NSE relating to which stocks have been moved into the trade-to-trade (T2T) segment that requires compulsory purchase or delivery. http://nseindia.com/content/circulars/surv12899.zip - Here . 3. Stocks that have been discussed on TED such as HSIL, Gabriel, MUSCO, Excel Cropcare (and mera Tata Metaliks) have all been moved into this T2T segment based on observations by the surveillance panel of the exchanges. Some are due for release on Friday. To my knowledge, no explanation is given for the moves in or out. 4. So while there is no argument with saying that one must bid more to get a stock out of the hand of an unwilling seller, there is the action taken by the exchanges to consider as well. Basant and Subu have both mentioned getting "correspondence" regarding their purchase of illiquid stocks. Despite my request, the content of this correspondence hasn't been provided on TED. I hope they oblige. 5. I do not argue with the contention that highly liquid stocks are also favourites of speculators. 6. The comment on the trading volumes of Infy and other stocks in their infancy is relevant but the big difference now is the ease with which information (& disinformation) can be spread to gullible "investors" looking for a quick buck via the internet & SMS. So, in conclusion, I don't agree with the feeling that illiquid stocks are automatically safe from speculative activity especially if they are recommended as tips. If someone researches a stock based on whatever parameter and then attempts to buy, the chance of getting trapped into an illiquid stock which is being pumped by someone is far less. ------------- |
Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 1:07pm
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SURVEILLANCE DEPARTMENT CIRCULAR Circular No.: NSE/SURV/26/2009 Download No.: NSE/SURV/12899 August 17, 2009 Dear Members, In continuance of surveillance review and pursuant to the meeting at SEBI, with a view to ensure market safety and safeguard the interest of investors, the Exchange has decided to take the following actions: 1. In pursuance of Capital Market Segment Trading Regulations Part - A, 2.6, the securities as given at Annexure -1 will be shifted from rolling segment (series: EQ) to trade for trade segment (series: BE) with a price band of 5% with effect from August 21, 2009 (Friday). 2. Members may note that the securities as given at Annexure -2 shall continue to be available for trading in Trade for Trade segment with a price band of 5% or lower as applicable (series: BE). 3. Members may note that the securities as given at Annexure -3 shall be shifted back from Trade for Trade segment (series: BE) to rolling segment (series: EQ) with effect from August 21, 2009 (Friday) at the existing price bands. Members are requested to take adequate precaution while trading in the above securities, as the settlement will be done on trade-to-trade basis and no netting off will be allowed. Members should note that the transfer of securities for trading and settlement on a trade-to-trade basis is purely a market surveillance measure and it should not be construed as an adverse action against the concerned companies (emphasis mine). Further, this measure will be periodically reviewed depending on the market conditions. For any clarifications, members are advised to contact Ms. Anita Fernandes or Mr. Chirag Joshi on 26598129 or 26598166. For National Stock Exchange of India Ltd. Sonali Karnik Manager ------------- |
Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 1:15pm
NSE only!
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Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 1:19pm
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Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 1:27pm
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Posted By: basant
Date Posted: 18/Aug/2009 at 3:46pm
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Don't know if this is of any interst to you fwiw!!!
Ms/Mr *** *********, Thank you for giving us an opportunity to assist you. With reference to your telephonic conversation with our executive dated **/**/****, we request you to kindly provide a letter justifying the details of Repeated consecutive high trades done in the account **** in the scrip **** ******* ******as on *** and ****, 2009 confirming all the below points: Kindly elaborate your explanation on the below queries.: 1. What was the reason for trading (buying) in the scrip **** ******when trading volumes are lower? 2. Explain basis of arriving at the price traded for scrip *** ******. 3. Do you confirm the trades executed? 4. Do you have any specific information regarding the scrip **** ******? 5. Is the trading in the scrip **** ******based on his own analysis? 6. What was the objective of trade? Was it with long term or short term objective? Please specify the reason for the same. 7. Do you and will comply with insider trading regulations of the stock exchange and company Please confirm. 8. What is the % you are holding till date in scrip **** **** and accordingly do you give open offer? 9. Are you related to promoter/director group of the company **** ***** directly or indirectly?(if yes, specify the relation) 10. Specify the quantity and the price range at which you will be trading in the stock **** *******. 11. Are you aware of the counterparty broker or the client? 12. Is the trading in sync with your normal trading pattern? 13. How long have you been holding the stock **** *******? 14. Does the order in the scrip match with your risk appetite, trading profile and investment objective? 15. Are you authorized someone else to trade on your behalf? Whether appropriate authority letter was given? You are requested to mail us the details at **** @****.com/. You may also courier the same at the below mentioned address: We always look forward to bringing you the best of our services and hope to continue with the same co-operation and support in future. Best Regards,
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: tigershark
Date Posted: 18/Aug/2009 at 4:06pm
if this journalist had tried the liquid produced by this illiquid stock USL way back in 2002 then he would have been writting a different story.had he bought usl then he would have stopped writting a long time back
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 4:14pm
Amazing stuff but enough to confirm that buying of or (Repeated consecutive high trades) in an illiquid stock raises eyebrows  . I guess the primary purpose is to ensure that the buyer knows what he's doing and is not some unfortunate being manipulated or misled by someone.
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Posted By: tigershark
Date Posted: 18/Aug/2009 at 4:27pm
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buying is the buyers problem. due dilligence r the most imp 2 words in the stock mkt.no point opening oxford dictionary to find out meaning of due dilligence after one has bought
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: Hitesh Shah
Date Posted: 18/Aug/2009 at 4:40pm
That's why the letter was issued? Not everone is gifted or talented. The idea is to protect and educate readers of newspapers and is not meant for RJ's, WB's of the world or those who think they are the epitome of knowledge... ------------- |
Posted By: subu76
Date Posted: 18/Aug/2009 at 5:43pm
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Hitesh Bhai, I did not get a letter from the exchange. Basically the Kotak website was not allowing me to put in my trades. When i called up i could buy a lot at one go.
One general personal observation that i have is that in illiquid stocks valuations can really go haywire.....so if you're convinced about something you could get really good bargains.
Once i bought a company at 45 cr when it had 55 cr in cash.
It then fell down to 22 cr. But buying was really painful and wasted a lot of time.
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Posted By: vishmitt
Date Posted: 18/Aug/2009 at 8:00pm
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I agree that stock selection and liquidity are two separate aspects. Since SEBI cant/ doesnt do much about quality of stocks listed, it simply mixes the two. Low liquidity does make a stock easier to manipulate, but if one is careful on the research part, one can ignore such quotes. I was invested in stocks which used to fall 5-10% in a single day, with just 500-1000 shares traded, but i used to just ignore that price.
Liquidity is also a function of price it seems. Somehow, as a stock starts getting expensive, people start getting interested, and volumes go up!!
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Posted By: subu76
Date Posted: 18/Aug/2009 at 9:59pm
absolutely....while no one is clear about the reasoning behind this...past records accross markets displays this phenomenon.
Also, if two companies have the same prospects you want to chose the low priced ones to have past probabilities in your favor.
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Posted By: Hitesh Shah
Date Posted: 16/Sep/2009 at 12:22pm
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1. Basantji, please correct the spelling to "illiquid" in the topic title. 2. Today's Free Press Journal (Mumbai print edition) has a one page notice by some Bengalooroo vakil listing his client's portfolio which he wants to dispose of. ------------- |
Posted By: basant
Date Posted: 16/Sep/2009 at 12:48pm
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Is there a link to that list. Are those stocks listed?
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Hitesh Shah
Date Posted: 16/Sep/2009 at 12:53pm
The website is freepressjournal.in but since this is a public notice, I'm not sure it may be online. I'll check. There are 415 scrips and I think I recognise only Pal-Peugot! ------------- |
Posted By: Hitesh Shah
Date Posted: 16/Sep/2009 at 1:08pm
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The contact is AM Vijay, Advocate, No. 71, 2nd Floor, C M Plaza, 8th Cross, 1st Main, Sampangiramanagar, Bangalore 560 027. No 'phone, fax, e-mail. Wonder if it's SmartCat exiting at the top as per his top-secret strategy? ------------- |
Posted By: rapidriser
Date Posted: 16/Sep/2009 at 3:15pm
It must be Smartcat. The management of PAL-Peugeot is exactly the sort he prefers.
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Posted By: subu76
Date Posted: 16/Sep/2009 at 6:44pm
Hitesh Bhai, Is the number of stocks or amounts expected also mentioned?
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Posted By: Hitesh Shah
Date Posted: 16/Sep/2009 at 8:43pm
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No details except the names. And the online version doesn't seem to have the page.
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Posted By: smartcat
Date Posted: 16/Sep/2009 at 9:23pm
arey bhai, we have just started trekking up the hill, and you already want to go back home? We haven't reached the top yet.
Although I don't own Premier Auto, I better check my DP account to see if this lawyer is disposing off my shares!
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Posted By: Mohan
Date Posted: 16/Sep/2009 at 10:22pm
DP Account ? Singular ? I expected more than one account. ------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: Hitesh Shah
Date Posted: 06/Oct/2009 at 5:23pm
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Latest list of illiquid stocks is http://bseindia.com/cirbrief/new_preview_attach.asp?id=%7B93E492D1-3DED-49CB-9B65-C5B4D7E0614B%7D - here .
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Posted By: Hitesh Shah
Date Posted: 10/Nov/2009 at 6:21pm
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http://www.livemint.com/2009/11/10001110/Traders-show-high-interest-in.html - Traders show high interest in Pilani shares
On Tue, 10 Nov 2009 12:45 am IST
Interest in Pilani’s shares stems from its investments in BK Birla and Aditya Birla Group companies ------------- |
Posted By: rana123
Date Posted: 19/Nov/2009 at 4:31pm
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Illiquid stocks usually have bigger ticks than more fluid stocks, but generate larger gains with less volume. Less volume means that it takes less to push a stock up than it does to push a heavily traded stock. Trading illiquid stocks can help improve your trading and make a trader more knowledgeable on the effects of volume. Illiquid stocks can help investors reach trading goals much faster as each movement is much larger than the movements in high volume stocks.
How to Generate Profits Proven strategies for profiting from illiquid stocks are gap strategies. Low volume stocks are much more prone to gapping, and thus, strategies for gapping up and strategies for gapping down are much more effective in trading these stocks. Technical analysis can be more difficult to apply to low volume stocks, but is much more profitable on moves than high volume. Technical analysis indicators are choppier and less fluid than on high volume securities. Less Data More Decisions If you’ve ever taken a look at a stock chart of a low volume stock, you’ll see that technical analysis doesn’t apply as well. Moving averages can be as volatile as the price itself, and momentum indicators are less accurate. Custom indicators with longer data timeframes and special weighting can help smooth out the ups and downs and give a better picture of future direction. Back to the Basics The basic trading fundamentals, such as earnings reports and price to earnings ratios, are much easier to comprehend and apply to these stocks than technical analysis. Fundamentals work over the long term much better, as they show real value of a company rather than the day to day trading range. While not completely custom indicators, a long term PE reference will help you determine if the stock is oversold or overbought much better than the technical analysis counterpart, the RSI. Lower Volume Can Be Better Low volume stocks need less attention than the ever changing favorites like the QQQQ or common ETFs. The price action of penny stocks, low volume stocks, and other illiquid investments is much more contained and infrequent, allowing a trader time off in between trades. Proven strategies like earnings reports and fundamental analysis works well on the lower volume stock, and for long-term investors, the most illiquid stocks are the best. ------------- |
Posted By: Hitesh Shah
Date Posted: 25/Nov/2009 at 7:30am
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http://www.thehindubusinessline.com/2009/11/26/stories/2009112652120100.htm - New lease of life for illiquid stocks Total scrips traded on BSE rises 15% since Jan. Several illiquid and dormant stocks have now got a fresh lease of life on the ... ------------- |
Posted By: tigershark
Date Posted: 27/Nov/2009 at 2:00pm
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |