Investing in illiquid stocks

[DTEJD1997]

Hey all:

I have found myself investing more & more in very small, very thinly traded stocks. In fact, I would argue that a lot of these stocks are more like investing in a limited partnership. These stocks are not highly correlated with general market returns and thus have a low Beta.

For example, some of them don't even trade daily.

Some of them pay 7% dividends. A lot of the companies have NO DEBT.

Some of the companies have P/E ratios of 3.

At some point, if you get a stock cheap enough, and the company is in good enough financial shape, it almost doesn't matter what the stock market does. You are betting on what management can do. For example, if a stock is trading for $1.30/share but has $.55/share in earnings, how will it be affected by market conditions? In the upcoming year management indicates that they think sales will increase 15% and earning will increase maybe 20%. If management is correct in their assumptions, it almost doesn't matter what the general market does...

Any thoughts?

[barrytrot]

That sounds like a very solid strategy on face value.

If you have the ability make sure you do research on these companies though as the problem isn't the income they "have earned" it is the income they "will earn". And for tiny companies that can ebb and flow.

Also accounting-wise a company can decide when to declare certain expenses, receivables, and income in order to skew results in the short term. Ironically you are probably in bigger danger of that with larger companies though although it happens with every company from time to time and not always because of something evil.


I wish you the best just keep an eye on your investment's FUTURE that is the key to you getting your money back.