Question about liquidity

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Question about liquidity

Postby InvestorNewb » Thu Feb 14, 2013 5:01 pm

Hello,

I recently read that Eric Schmidt will be selling 3.2 million shares of Google. This got me thinking about liquidity.

Suppose he decided to sell all of the shares at once. Would this even be possible? What if there aren't enough buyers?

On the same token, would someone ever have problems trying to sell a total stock market ETF? i.e. maybe in the event of some kind of catastrophe, where a high volume of people all tried to cash out on the same day.
Current Holdings: VTI, VXUS, VNQ, VCE (largest to smallest)
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Re: Question about liquidity

Postby NYBoglehead » Thu Feb 14, 2013 5:10 pm

I don't think you need to worry about liquidity in selling your ETFs. A huge rush to sell by a large amount of people would drive the price down enough that there would surely be a willing buyer. People that sold in March 2009 because they thought the sky was falling had their lunch eaten by those that bought those shares (they have enjoyed ~125% plus returns).
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Re: Question about liquidity

Postby Khanmots » Thu Feb 14, 2013 5:21 pm

NYBoglehead wrote:I don't think you need to worry about liquidity in selling your ETFs. A huge rush to sell by a large amount of people would drive the price down enough that there would surely be a willing buyer. People that sold in March 2009 because they thought the sky was falling had their lunch eaten by those that bought those shares (they have enjoyed ~125% plus returns).

For funds with decent liquidity I'd say this.

For others, like say ANGL, liquidity could be a big worry.
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Re: Question about liquidity

Postby SSSS » Thu Feb 14, 2013 5:23 pm

Average trading volume for GOOG is about 2.5 million shares per day.

InvestorNewb wrote:Suppose he decided to sell all of the shares at once. Would this even be possible? What if there aren't enough buyers?


If he placed an all-or-none limit order with the limit set to a reasonable price, it just flat-out wouldn't execute.

If he placed an all-or-none market order, he would probably sell for a pitifully low price to some brokerage whose automated trading platform had put in a huge low-price order on the astronomically unlikely chance it would actually be filled.

If he placed a non-AON market order, he would sell enough shares to fill all orders at the current bid price, then start filling progressively lower and lower bids, potentially cratering the stock price, but probably all his shares would sell, albeit some at a pitifully low price. If there weren't enough orders already open, I'm sure the automated trading platforms would respond by flooding a ton of low-ball orders.

If he placed a non-AON limit order, shares would sell starting at the current bid price and then dropping until they reached his limit amount.

This is all assuming the exchange doesn't shut down trading due to tripping a circuit breaker.
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Re: Question about liquidity

Postby NYBoglehead » Thu Feb 14, 2013 5:29 pm

Khanmots wrote:
NYBoglehead wrote:I don't think you need to worry about liquidity in selling your ETFs. A huge rush to sell by a large amount of people would drive the price down enough that there would surely be a willing buyer. People that sold in March 2009 because they thought the sky was falling had their lunch eaten by those that bought those shares (they have enjoyed ~125% plus returns).

For funds with decent liquidity I'd say this.

For others, like say ANGL, liquidity could be a big worry.


Correct you are. The poster asked about Total Stock Market ETF, I failed to properly address that in my response. There will definitely be some that people would have trouble getting out of, but VTI (TSM ETF) would certainly not be one of them.
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