Investing Demystified, 2nd Edition

Appendix I

Liquidity and the rational portfolio

Selling your investment

Liquidity is really a question of how quickly you can transact your investment portfolio. If you hold 50,000 shares in Microsoft that may be a lot of money to you (about $300,000 at the time of writing) and a significant share of your investment portfolio. But if you needed to sell the stock, you could do so in minutes without moving the share price. Around 500 million Microsoft shares trade every day so your entire holding represents a tiny portion of a day’s volume.

If on the other hand you owned $300,000 worth of shares in a company that trade only $100,000 worth of stock every day, then you would have a problem if you needed the money quickly. Let’s say the share ...