If you are investor, whether new or experiences, you must know there are certain types stocks that can put you in trouble. These are known as Unlisted stocks and the other is Illiquid stocks.
In my previous article, I have already explained what is an UNLISTED stock and how can you sell a such stocks. Unlisted stocks are such, that should have brought directly from an unlisted company or a stock of listed company kept in hand even after the company unlisted from the stock exchange. There are various options to sell an unlisted stocks as mentioned in my previous article.
Another kind, ILLIQUID stocks, are the stocks of currently listed companies, but considered as a dead stocks due to not having any activity such as buying or selling by anyone. In other words, no transactions would be happened on such stocks. In this scenario, those investors who hold such stocks, would be difficult for them to sell again due to not have any buyers in the market.
Most of the time, new investors found frequently falling to this trap. Micro cap and penny stock investors are the biggest victim of having illiquid stocks. such stock will remain in their hands without having any buyers in the stock-market. Such stocks never give any returns, but contribute heavily to money lose. When buying illiquid stocks, knowingly or unknowingly, an investor really converting his or her live money to dead money. There are lots of such stocks can be found in stock markets. Even stocks markets regularly list the illiquid stocks in their websites for investor awareness. Is there any option available to sell such illiquid stocks you have? Chances are very limited, but there are some. If you are lucky, any or more of the below mentioned options would work for you.
1. Wait for a chance Realize that, if you have an illiquid stock in your hand, you are in trap. Instead of proceeding with any urgent step to dispose such shares and meet huge loses, patiently wait and regularly track the company until any positive news comes out from them. If so, this would be a best time to sell your stock as someone would be ready to buy the stock on the positive news on the company. It is not an easy task, but you should regularly track the company. Google alerts are the best options among to deliver right information right time to your hand. So go for that and set necessary alerts.
2. Reduce the asking price
If you have an illiquid stock, your first goal should be avoiding the same anyway. Waiting to get the money spend for buying this scrip is invalid at this point of time. You may need to ask a price less than the current price of the stock in the market. If you are lucky, someone would come and buy your stocks. Holding an illiquid stock until getting the money you have spend to buy the stock is totally a foolish act. You are not only going to get money, but also going to face lose as long as you hold such stocks. Sell at the earliest by using any of the technique in this article and thus reduce the lose.
3. Learn the Reason of Being Illiquid
There are lots of reasons company stocks can reach to illiquid list. Being aware of the exact reason why a stock became illiquid, would help you to target on that particular issue company facing. Once the issue solved, then the stock become liquid easily and you will get a chance to sell the same. One of the reason why stocks are being illiquid is, having higher promoter holding. Identifying such issue and tracking the status of the issue time to time is necessary to sense the right time to sell the stock.
4. Approach Illiquid Stock Buyers
In some countries, there are agencies specifically focused to buy and sell illiquid stocks. You have to search for them and once found, approach them. If it is feasible to you, sell your illiquid stocks through them.
5. Get Advise from your Brokers
You can also approach your brokers to sell your illiquid stock or at least get right advise on what needs to do to sell. Brokers would be able to help you to sell the stock or at least advise some good options to sell those stuff. Brokers are the best to advise on such because they should have faced lots of similar issues from various customers.
A Word of Caution:
Always know what you are buying and selling. Taking enough care and research prior buying any stocks are mandatory to not fall into the trap of having illiquid stocks or huge lose in stock market. Human errors are the major fact of most of the investment loses found today. Don’t be a victim of that!
Sherin Dev is is the author and owner of this blog, investinternals.com. He loves to write especially on value investments and financial planning.