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Price Michel Pireu     | Business Day Wednesday, October 17, 2018
From Nick Maggiulli Of Dollars And Data:

Most of the time when we want to know the price of something we can use the market or comparable assets. When you go to buy and sell an S&P 500 ETF, the price is known and displayed for you. When you go to sell your home, a proper appraisal and similar homes can be used to determine the approximate selling price. This is likely to be true 95% of the time or more. However, when markets become abnormal, pricing an asset is no longer straight forward. Instability emerges and you quickly realize that you won’t know the price of your asset until you go to sell it.

History is riddled with examples of individuals thinking they knew the prices of their assets, only to get a rude awakening when they tried to sell.

If there are no buyers and you need to sell, you only have one option—lower your price.

You might think that this situation will never apply to you. But, I would advise caution. The cruel world of price discovery can befall anyone.

It is during financial calamity when the harshest truth about asset pricing becomes apparent: those times when you are most desperate to sell are the times when prices are most likely to be in a state of flux. When you are the neediest for cash is also when it is most difficult to sell an asset at a fair price.

The best way to prevent having to sell at a loss is simple: have ample liquidity. If you have large enough cash reserves to support your liabilities during economic crises, you will never be forced to sell. In fact, if you have enough cash on hand, you will be able to dictate the prices you can buy assets for.

 
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