Liquidity: Does it Matter?

Let’s switch our focus to the market side and talk Liquidity. In the widest, most straightforward way possible, liquidity is a market’s ability to purchase or sell an asset without a causing drastic change in the asset’s price.

Investors have varying opinions on the importance of liquidity.

When does liquidity matterWarren Buffett, the billionaire chairman of Berkshire Hathaway Inc. has famously stated: “Only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years.” He believes investors should treat their equity holdings like real estate purchases, focusing on the potential for profits over time rather than short-term price fluctuations.

Others rank liquidity close to the top of their investment checklist. Why? Because they want to be able to sell and redeem an investment at a moment’s notice, without the fear of having to hold their shares for an unknown period of time. The world moves at a fast rate with sellers and buyers alike sometimes wanting instant gratification.

If you’re a short-term trader, there’s one important factor to look at when focusing on liquidity: Will the sale immensely influence the market price? Or is there sufficient demand to support the market price regardless if you hold or sell?

There is room and a need for both Warren Buffett types and heavy traders in the markets today. At TAG Oil, we have roughly 18,000 shareholders made up of traders, funds, and institutions, high net worth and private investors. This broad shareholder base keep the market liquid, although many of our shareholders share Warren Buffett’s opinion, and have held their stock through the highs, lows, and climbing back to the highs.

We thank all our shareholders for the believing in the company, the management, and the story of TAG, and we look forward to continuing the exciting journey ahead.