In his regular letter to Oaktree clients, Howard Marks wrote about market liquidity and its potential dangers investors often overlook. I highly encourage readers to read it as it points out various key issues on liquidity and behavioral economics. One of the key quotes from Marks sums up this entire article:

 “Liquidity is ephemeral: it can come and go.”

What does Howard Marks Mean by That?

When analyzing key risks in any security, liquidity would always be one factor amongst the endless list of risks involved. Investors usually glaze over liquidity and look at more substantive risks such as interest rate risks for bonds or stocks, foreign currency risks, credit risks and general business risks. It’s easy to see why liquidity risk is often overlooked – its effect on price (or lack thereof). Liquidity has close to no perceivable impact on the pricing of a security, whereas interest ......