Taking Advantage of Liquidity

At TMI we strive to provide our clients with an optimal investment experience that is not found with other investment institutions. Not only do we make every attempt to offer the greatest return on investment (ROI) possible, but we equally strive to reduce investment risks to the bare minimum.

While this may sound as a conservative approach to investing, this form of investing has allowed TMI to continue to grow and even survive the now infamous 2008 market crash.

By focusing our efforts on money risk management as opposed to boosting profits rapidly, TMI has been able to produce a winning track record of performance that is second to none; with a consistent average return of 12.34% to 17.78% annually.

To achieve this ROI on a regular basis,  we consider liquidity as a major component of our investment strategy.  That’s because the greater the liquidity of a company the easier it is to convert assets into cash.

That’s why we always keep liquidity levels in mind when we invest in any asset.  It can be difficult and time-consuming to convert certain assets back into cash.  These delays become transparent to you the investor when you want to withdraw funds or wish to sell off assets.

One last understanding of liquidity that is especially important for investors is how we determine the liquidity of companies that we may wish to invest in.  We use three ratios to determine how well a company can meet its obligations.

 

The Three Ratios that Determine Liquidity:

Ratio 1: Current Ratio:

Here we compare a company’s current income vs its current liabilities, extending no longer than one year, to determine how quickly a company can convert assets to cash.  The higher the ratio, the better the liquidity of the company.  TMI does not invest in companies with a liquidity ratio less than two.

 

Ratio 2: Quick Ratio:

Using this ratio, TMI evaluates a company’s assets, excluding inventory, versus its current liability to determine the company’s liquidity.  TMI does not invest in companies with a ratio of less than one.

 

Ratio 3: Debt/Equity Ratio:

The debt/equity ratio of a company is calculated by dividing a company’s total liabilities by its stockholders’ equity.  TMI does not invest in companies with a high debt/equity ratio because such companies are less liquid since they use their cash to reduce their debt.

 

From an investor’s point of view, we consider companies with a daily trading volume of less than five-million as being less liquid and we do not entertain such companies as part of our investment portfolio.