Trading or Investing in Liquid or Illiquid Markets
There are several ways to make money in this world. The easier to buy and sell something, commonly know as liquid markets, the easier it is to lose money. A liquid market is buying and selling anything that can be bought or sold in seconds as opposed to minutes, hours, days, weeks, months, or years.
In a split second, I can purchase $100,000 in a publicly-traded company like Apple Computer. So I can also sell the same company just as fast. This is called a liquid market and fortunes are won and lost daily. Buying everything from currencies, futures (commodities), options (the right to buy or sell something in the future), stocks, bonds, debt, and a whole host of other things.
This liquid market is what Warren Buffet, the legendary 90 Billion dollar investor says “remember the stock market is a manic depressive”. Therefore it’s unpredictable, erratic, and up one minute and down the next. So there is no way to figure what it will do moment by moment. , so don’t try to beat something you cannot figure out since no one knows what will happen from one moment to the next.
What’s the point? So the point is if you’re going to buy into a liquid market like the stock market it’s best to buy and hold instead of trading. Because I’ve done both in a focused and concentrated way. My buy and hold strategy far out-weighed my trading by more than 30% this year. When COVID landed and the market caved I bought as the market continued to drop. Then I bought more and down it went. So after a while, I bought more and it eventually started to rise based on the news and possible vaccines.
Then it tanked again as more unemployment reared its ugly head. So then it went back up, and so on and so forth. Sounds like Mr. Buffet was right and guess what? Warren Buffet didn’t buy or sell anything. Just a bunch of airline stocks before they caved even more.
What I bought in 2020
Here are the stocks I bought when they were rising as opposed to bottoming since it’s easier to buy when stocks are on the rise as opposed to trying to predict the bottoms. When stocks fall then it’s time to wait and do nothing.
Amazon AMZN $2100
Apple AAPL $325, rose to $500 and split 4 for 1
Alibaba BABA $210
Microsoft MSFT $185
Bank of America BAC $22
JP Morgan Chase JPM $95
Ford F $ 4.25
GM G $23
2 old car companies
Believe it or not, Ford and GM are two of my best performers. The others have faired well too. Did I make money on paper with these companies? The answer is I have. So will I continue owning these companies? The answer is no, I dumped everything except Ford, GM, and Apple to my regret because the others continued to rise. So much for trading stocks in liquid markets, although the ones I held have done quite well.
Illiquid vs Liquid markets
The point is my businesses in illiquid markets faired much better than my liquid market investments. So real estate investments and my asset recovery business with returns in excess of 40%. (see my videos and blog on the asset recovery business). www.youtube.com/channel/UCvfXFzq6HlvYyWB_SqZZdmw
Why Illiquid markets are easier
My top 5 reasons why
- Illiquid markets are not controlled by the speed of buying and selling but happen over time
- Liquid markets can turn on a dime in a matter of seconds leaving you with instant losses.
- It takes a certain temperament as Mr. Buffet says to deal in liquid markets, and I think he really knows from experience.
- Liquid markets are profitable if your willing to get rich slow as Mr. Buffet would say and most people don’t like slow wealth, they like fast wealth.
- My asset recovery business is controlled by me and I can buy things when I want and sometimes take my time in selling off what I sold because I almost always buy at least 50% below market value.
The next 5 Reasons why
- Liquid markets you almost never buy below market value but at the market value.
- My real estate investments grew by 20% to 30% depending on the locations as some of my properties are in the states and outside.
- Liquid markets come with leverage somewhat like real estate. But unlike real estate liquid markets make cash available immediately. If I put up $100,000 Interactive Brokers will loan me about 3X that amount for a total of $400,000 and I can get it in seconds at a favorable rate. This means I can lose all my money just as fast as I received it because liquid markets tend to drop like a rock when you least expect it.
- Small businesses that I own are controlled by me, not the market. The stock market and other liquid markets are controlled by huge amounts of capital and run my high-speed computers making markets rise and fall like the wind.
- There are many opportunities to buy “undervalued” assets at great prices and then keep pr resell them. Liquid markets are more what you see is what you get in terms of market values because the value is already factored into the current price. Where Apple computer is $115 today so if I want to buy the price is the quote. But if I want to buy 100 Apple iPads in my illiquid market the market value maybe $100 each but I have found a seller at $50. Now it takes longer to sell my product but my profit is already built-in when I bought it.
Illiquid markets like real estate, the asset recovery business, the trucking business which I own and others produce profits over time. The chances of losing money in these businesses are pretty slim and the risk is also very low.
Liquid markets are fun, sexy, exciting, and very dangerous unless you have the temperament to buy and hold as opposed to trading in and out of them. Wealth happens over time which is why most people are not wealthy.
I say it’s easier in illiquid markets unless you’re Warren Buffet or you have the right temperament. Therefore the slow slog through buying and hold in Liquid is good if you have enough cash to start with.
Mike Addis, Carlsbad California, Copyright October 2020.