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You don't understand the concept of liquidity. Finance people (and anyone else with a hat full of brains) knows the difference between a market clearing price,

You don't understand the concept of liquidity. Finance people (and anyone else with a hat full of brains) knows the difference between a market clearing price, and there being no liquidity. No liquidity means: I can sell 500 of these shares per day (paintings, buildings) for price x but no higher - while at normal times I can sell 50,000 of these for price x but no higher.

semi-extrinsic 11y ago
The underlying assumption of "normal times" is what can cause problems with the concept of liquidity for assets that are rarely traded. E.g. if you define "normal times" as "the one transaction that occurred when I bought the asset".
hueving 11y ago
You just echoed exactly what I said. Lack of liquidity is just another name for lack of demand at the price you want. You could certainly sell more than 500 shares if you started lowering the price. Let me ask you a question (since you "have a hat full of brains"), would you value Tesla the same if they were able to generate sales for 500 cars at the current price rather than 50,000 at the current price? If you can 'normally' sell 50000 units of something in a day at price X and suddenly you can only sell 500 units for price X, it means the demand is gone at that price point. Basic supply and demand applies to everyone, including people with hats full of brains. Take any market that is in a "liquidity crunch", and cut the asking price by 90% of what you're trying to sell and see how quickly liquidity returns. Long term capital management paid a hefty price to learn that no demand because of "lack of liquidity" is the same thing as no demand because people don't want to pay the asking price. There is no such thing as "normal times", there are just current market conditions. Oil traded at close to $100 during "normal times" just a couple of years back. Coal companies were good investments 10 years back. There are lots of people waiting for the market to return to "normal times" that will be waiting a long time.
- shwouchk 11y ago
  While I see your point, there is also a difference in kind between no one buying your painting at $1000 because it isn't worth that much, and no one buying any painting for $1000 because they are afraid and being extra causcious with the money...

semi-extrinsic 11y ago

The underlying assumption of "normal times" is what can cause problems with the concept of liquidity for assets that are rarely traded. E.g. if you define "normal times" as "the one transaction that occurred when I bought the asset".

hueving 11y ago

You just echoed exactly what I said. Lack of liquidity is just another name for lack of demand at the price you want. You could certainly sell more than 500 shares if you started lowering the price. Let me ask you a question (since you "have a hat full of brains"), would you value Tesla the same if they were able to generate sales for 500 cars at the current price rather than 50,000 at the current price? If you can 'normally' sell 50000 units of something in a day at price X and suddenly you can only sell 500 units for price X, it means the demand is gone at that price point. Basic supply and demand applies to everyone, including people with hats full of brains. Take any market that is in a "liquidity crunch", and cut the asking price by 90% of what you're trying to sell and see how quickly liquidity returns. Long term capital management paid a hefty price to learn that no demand because of "lack of liquidity" is the same thing as no demand because people don't want to pay the asking price. There is no such thing as "normal times", there are just current market conditions. Oil traded at close to $100 during "normal times" just a couple of years back. Coal companies were good investments 10 years back. There are lots of people waiting for the market to return to "normal times" that will be waiting a long time.

shwouchk 11y ago
While I see your point, there is also a difference in kind between no one buying your painting at $1000 because it isn't worth that much, and no one buying any painting for $1000 because they are afraid and being extra causcious with the money...