The case for buying illiquid stocks

Most investors fawn over the big banks, Westfield and Woolies – great companies, dominant positions and highly liquid stocks that you can buy or sell in a heartbeat. The trouble is that everyone else likes these qualities too and so popular stocks often come with hefty price tags, leading to mediocre returns.But if you’re willing to buy the forgotten minnows of the stock market, the opposite principle may apply.A 2012 study assessed US mutual fund returns from 1995 to 2009. Funds were classified according to their value or growth orientation, as well as the liquidity of their stock holdings.Funds that held...

Most investors fawn over the big banks, Westfield and Woolies – great companies, dominant positions and highly liquid stocks that you can buy or sell in a heartbeat. The trouble is that everyone else likes these qualities too and so popular stocks often come with hefty price tags, leading to mediocre returns.

But if you’re willing to buy the forgotten minnows of the stock market, the opposite principle may apply.

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