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Definition

Illiquid shares are those which trade less than R200 000 worth of shares every day on average. Such shares can be traded by private investors, but the big institutions (like pension funds, unit trusts and insurance companies) generally stay away from them. The big institutions account for 90% of the trades on the JSE - so shares which are relatively illiquid can offer the private investor a good opportunity. A good example of this would be a share like Cartrack which has a business that is growing strongly and making good profits every year. It is a service company which receives nearly 90% of its income in debit-orders and it has a growing international customer base - but the big institutions cannot buy the share because on average it trades less than R150 000 worth of shares every day. For them, to buy what would be a small stake, would drive the share price up substantially. But for a private investor who wants invest, say R30 000, Cartrack represents a good opportunity. Because sooner or later it will be big enough and liquid enough to attract institutional buying.

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