Observations About Investing in a Low-Volume Stock
A few months ago, I bought a low-volume stock, Oregon-based Willamette Valley Vineyards (WVVI). I had seen the company’s name on a screen of liquor stocks I occasionally run and was prompted to take a closer look when the company sent us a prospectus for a preferred stock offering. (I think my wife put us on their mailing list at a tasting.) After doing my own analysis, I passed on the preferred stock but bought shares of the common stock.
When I talk about the common shares having low volume, I’m not exaggerating. Daily trading has averaged just under $36,000 per day over the past three months. This is the cumulative dollar amount for all of the shares traded on an average day. Some days, it’s less; on others, it’s more.
I’ll share some observations I’ve had while owning Willamette Valley Vineyards, along with some suggestions about how to go about investing in a low-volume (aka less-liquid) stock in general. But before I do, I want to explain why it even makes sense to consider a stock with low levels of trading volume.
More on AAII.com
- The Liquidity Style: Finding Bargains by Seeking Less Popular Stocks – Yale professor Roger Ibbotson says stocks with lower relative trading volume offer the potential for higher returns.
- How Liquidity Impacts the Attractiveness of an Asset – Charles Rotblut discusses the upsides of low liquidity and why some investors choose to avoid less frequently traded assets in this 2013 AAII Journal article.
- Have You Ever Bought a Low-Volume Stock? – See how members responded on the AAII.com Discussion Boards.
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