Short Term Liquidity in Volatile Times

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  • Post last modified:December 24, 2018

Global equity indices have realized that the world is becoming increasingly uncertain. From the Federal Reserve’s interest rate policy and poor jobs growth in the USA, to the violent changes in Chinese financial regulation. Day-to-day headlines now have the ability to jerk around benchmark indexes and stocks.

Just the other week, stocks in Hong Kong surged on reports of the government assisting the city’s slowing private sector. Bloomberg indicated that, “Great Wall Motor Co. headed for a three-day, 37 percent advance after a tax cut on passenger-vehicle purchases

[was proposed].” Consumer discretionary stocks lead the rally, with casinos outperforming.

In volatile times it is difficult to hold onto stocks, but as recent news has shown, attempting to trade around these events can be equally as difficult; especially when stocks are moving double digit percentages on a daily basis.

The best solution for investors is to remain invested in a fundamental thesis. If one is in need for short term liquidity, taking out a loan out against a stock position is first-class fix. As investors have seen in recent weeks, it might only take a day or so for prices to rebound, so completely or partially liquidating a position to cover short term liquidity needs can prove to be detrimental for investors.

In a related study conducted by Dalbar, one of the world’s leading financial services market research firms, individual investors don’t take a long-term view of their holdings. In Dalbar’s Quantitative Analysis of Investor Behavior report, the firm concluded that most individual investors don’t stay invested in their funds for more than 4 years, according to data compiled over that last two decades. “Market timing” around periods of volatility has produced 20-year average annualized returns of 2.5% for individual investors. These poor returns are attributed to individuals attempting to trade around during volatile times in order to avoid a drawdown. Historically speaking, this has been a poor strategy.

Sophisticated high net worth individuals and institutional investors leverage Squadron Lending’s short term stock for loan facilities. Thus giving them the short term capital injection they require to cover their individual constraints and giving them the ability to remain in their investment, giving clients the upside of still remaining in the market and the capital injection required. Attempting to “time” the market with sales and purchases has proven to be a losing venture for investors.

Squadron Holdings has a steadfast focus on such stock based loans. The firm has the ability to quickly make low interest rate non-recourse loans across the globe. Individuals or institutions can have stocks traded on virtually any exchange, from the Australian Securities Exchange to the Hong Kong Stock Exchange. With decades of experience, Squadron has the ability to quickly fund large loans, especially valuable in uncertain times and regulatory environments around the globe.

Short term volatility in financial markets should not cause investors to liquidate positions to meet equally short term liabilities. These circumstances favor stock based loans.

Squadron Lending partners with other financial service professionals. We work closely with accountants, private wealth managers, securities houses, attorneys and other independent financial advisers. Please contact us here to learn more about our referral program.