ADDvantage Technologies Group, Inc. (AEY), Gravity Co., LTD. (ADR) (GRVY): The Value Investors’ Guide to Buying Illiquid Stocks

The only enemy when it comes to buying illiquid stocks is yourself and the psychology of missing out. I’ve done it myself. I put in a bid and then after 30 minutes of not getting it filled, I increased my bid slowly and eventually bought at 3-4% above my initial price.

At the end of the day, the stock had actually dropped 3-4% below my initial starting price. So I’m already starting down 6-8%. Way to go. This sense of missing out, getting urgent is what causes you to buy at a higher price.

Companies use urgency all the time making you feel like you are going to miss out.

Say you found a good looking laptop bag at Zappos.com. The quality is excellent and best of all, it’s on sale.

Bingo.

Your eyes roam to the add to cart button, but above it, there are the words, “only 2 in stock”.

Sold.

The airlines do this all the time too – “Only 4 tickets left at this fare”.

Now that you are aware of the psychological behavior when it comes to buying shares, consciously make the effort to set your price and walk away.

Do that in a live market and the seller will run out to sell his goods to you.

Tips to Grabbing Illiquid Shares of Great Companies

Always buy stocks using the limit order

Use the good til canceled option

Don’t use All or None. If you are trying to buy 1,000 shares, what’s the chance that you will get all 1,000 shares in one order? Build your position in blocks if you have to. That’s why you need a good discount broker with cheap fees like optionshouse. $3.95 per trade. Yum.

Try to keep commissions below 1% of your order. Again, it’s why I use optionshouse. As long as my order blocks are at a minimum of $400, I don’t have to worry about fees eating my returns.

Don’t bid up stocks. Set it and forget it. You should get an email notification if a trade goes through.

A stock is always liquid enough for small investors.

If the stock price of ADDvantage Technologies Group, Inc. (NASDAQ:AEY) is $2.30, instead of putting in a bid price of $2.30, put in something like $2.31 or $2.32.

If you want to sell a stock like ADDvantage Technologies Group, Inc. (NASDAQ:AEY), put in something like $2.29 or $2.28 to make the probability of the trade going through higher.

Most important of all, chill out and take it easy.

This article was originally written by Jae Jun, and posted on OldSchoolValue.