Price really has nothing to do with liquidity. The difference between owning 50,000 shares of a $100 stock or 100,000 shares of a $50 stock is zero.
An institution may not REFUSE to buy EMC because of the liquidity, but they might buy a lesser position than what would otherwise be warranted. That is because many large purchasers of a stock justifiably like to have an exit strategy. To take an extreme example, look at Fidelity and their 37mm shares of stock. If Fidelity wanted to sell their stock, it would take them a very, very long time to sell if they wanted to minimize the market impact of the stock sales. If Fidelity wanted to get out TODAY, the stock price would have to drop a whole lot to accommodate them.
Now take it down a couple of notches to a smaller institution. If a manager likes to keep his ownership of a stock at a level that he can reasonably sell the stock in a day without much market impact, he might be limited to 200,000 shares. If the specialist provided better liquidity and support to the shares, that manager probably could be able to buy more than 500,000 shares. Given that this is still a very small % of the float, there's no reason (other than a poor specialist) why this manager shouldn't be able to buy bigger size. |
