A major attraction of buying listed shares is that they're, well … listed.
Shares on the Australian Securities Exchange (ASX) can be bought and sold as there's usually a liquid market where most retail shareholders can buy and sell with ease.
A prime example of this is Ryan Newman's recent article where he gave two reasons why the Commonwealth Bank of Australia (ASX: CBA) was the most traded stock on the ASX.
But it's not just the CBA and BHP Billiton Limited (ASX: BHP) that are right up there in terms of the large numbers of shares traded. You could easily scan you way down through the S&P/ASX 200, and you'll find in most instances a plentiful market to buy and sell your shares.
Why does this even matter though?
Well, similar to a house that has been on the market for many months, or even years, the same could almost be said for some companies' shares on the ASX.
Consider Embelton Limited (ASX: EMB).
This company manufactures and distributes cutting-edge technological products such as flooring, structural noise and vibration control systems, metal fabrication, and cork sheeting.
It's actually a profitable business and has provided its shareholders a compound annual growth rate (CAGR) of 13.05% over the last five years and since 1988, it's provided shareholders a CAGR of 11.25% turning $1,000 into just over $22,000 today!
But, unless you're a genuinely long-term shareholder, there are huge risks with this stock.
The biggest risk with this stock (and not the business) is the fact that Embelton's shares traded almost by appointment. That is, the shares are tightly held, and to illustrate, only 49,300 shares in Embelton were traded over calendar 2016 (2.3% of the 2,157,857 shares on issue).
If you own a stock such as this, and you need to sell in a hurry, you're going to be hurt. Not only do you risk obtaining a much lower price that you envisaged, in some months, you may not even have a buyer at all.
What then?
Foolish takeaway
If you're usually investing for anywhere from 6 months to 5 years, I'd avoid stocks like Embelton completely and stick to those of the S&P/ASX 200. Stocks like Embelton can certainly sink your returns if there's only one buyer in the market offering to buy your shares at 30% less than the last traded share price.
It's a good idea to therefore continue to study and understand the world of sharemarket investing.
We're a big believer in focusing on businesses and not just stock codes, but being able to buy and sell at what can be deemed as the prevailing price is an important facet to approaching share market investing.
My suggestion is that you should stick to the bigger names and build a portfolio around good dividend payers, such as the ones mentioned in this free report below.
