David Dreman calls liquidity "The First Horseman of the Financial Apocalypse" (yes, there are three more). The great investor explains that the worst financial crises have always struck particularly hard those who had filled the portfolio with not enough liquid securities.
We definitely want to search for good opportunities out of the usual blue chips. But how can we avoid to pay a liquidity premium or even worse get trapped in illiquid securities?
According to the SEC and others, there could be liquidity problems by investing in companies with a float of less than 150 million dollars and which on average exchange less than one million dollars a day (ADTV). Unfortunately, Stockopedia does not allow filtering shares for free float and ADTV.
Then? I usually filter companies by eliminating those below the median by capitalization, spread and traded volumes. This way I esclude about the 70% less liquid companies. They still are much more than those in wide index like MSCI or FTSE Russell. This is my "personal focus". Before to decide to buy, anyhow I check ADTV multiplying average price (50d) by average volume (3m).
And you? How do you deal with liquidity?
