How to assess liquidity in stock investments?
In this article, you can get a clear-cut insight into liquidity assessment. But first, let us start with the basics. To date, cash and cash equivalents are considered the most convenient way to transact. This is because they are highly liquid assets. You must have heard the term ‘liquidity’ plenty of times. However, have you ever wondered what role it plays in stock investments? Liquidity essentially determines how soon you can convert an asset into cash for transacting. And it is a quintessential factor when it comes to making investments in avenues like the stock market. What is liquidity? The ease with which you can convert an asset into cash is termed liquidity. Different categories of assets have different levels of liquidity. Marketable securities, for instance, have a ready market. This increases their liquidity as one may quickly sell and get cash in exchange. In contrast, fixed assets such as real estate may take longer to sell or liquidate. This renders it illiquid. Tangible assets, such as valuable paintings, automobiles, or any form of collectibles are also fairly illiquid. By this measure, cash becomes the most liquid asset there is.