Liquidity means only that you can sell or buy shares fast. Of course, when you want to sell or buy shares with the same speed like before that means you will get way less or have to pay way more than before. But thats a principle working the same when you want to sell your SUV. If you want to sell it today because you move the next day then you probably will only find a buyer in the next bar that is paying one tenth of it. But if you take your time and search for a good offer you will find a better offer than this guy would give.
Exactly. That's why a house may have a fair market value of, say, $150,000 but in many contexts, it will be valued at $120,000 or so (for example, the IRS will value it at this amount for collection purposes). While its value is well-established at $150,000, people would rather have $150,000 than the house because it costs money and takes time to sell it. It gets even worse if the value is not well-established.
So what you now say is, only because you cant sell it in a second for the best price its devalued. Right? But nobody is forcing you to sell it in a minute even though that would mean you dont find an appropriate offer that is more than one percent of original value or so.
It doesn't matter whether anyone is forcing you to do anything or not. A $150,000 home is not worth as much as $150,000 because you have to put in effort and time to convert the home to $150,000. It gets much worse when the value is difficult to establish. For example, if you have the only house on a block with waterfront and your house hasn't sold in a decade or more, you may have a very hard time getting significant value for that waterfront. You have no good way to establish how much value it adds to the house. It takes a healthy, functioning market to reliably establish value in a way you can expect others to be willing to rely on. There is no substitute.
I'm not saying the value can't go back up if liquidity or a dividend channel is restored. I'm saying value is severely reduced now.
So when the issuer is paying dividend again you say the original value will be back?
No. But that will likely cause to it to recover some of its lost value.
I mean ok, its a hit that glbse died. So maybe there will less people invest. But i can imagine that there are persons that wanted to buy asicminer before and cant now. But they believe in asicminer and want to pay even more than before. Because they would have a harder time than before to get shares. The same would apply to you. You would have a harder time to find buyers, which could drop the price you are being offered. But of course its buyer and seller. And the bad price for the one side is the good price for the other. So the only effect missing liquidity would have, taking aside the trustloss from closing glbse, would be a more wide spread in bid and ask. And more time to establish trades. Thats the effect of missing liquidity in my opinion.
Sure, it may be great for a buyer that prices are lower. My point is that it screws over those that hold the asset now.
Right now, the market says Apple stock is worth $630/share. Please tell me how you could possibly have figured that out without a functioning market. The market also tells me that an average SUV is worth $25,000. Please tell me how you could possibly have calculated this without a functioning market.
I wouldnt buy apple stock out of principle. So its worth less for me. But the only thing needed to find a price is to have 2 persons. One interested in selling, one in buying. At the end a price is found. And if the price is too low or too high only comes from if the buyer or the seller is more interested in buying or selling. A functioning market only has the effect that more people can put in their image of the price. That means the price shown at the end is more accurate. An average of all offers.
We know, thanks to a functional market, that Apple stock is worth $630 right now. You can have confidence paying $630 for a share because you at least know that right now you can find other buyers who will pay that price. Such confidence will be impossible in a two-person sale with no functional market. This difficulty in selling the asset and difficulty in a potential buyer having confidence will reduce the amount people are willing to pay. In practice, almost nobody is going to pay $630 for a share of Apple stock if they aren't reasonably assured that the stock is generally valued around that level.
