The easier it is to sell the less value it has
Generally the intention of the securities market is to ensure that as many people as possible invest in the sector. They also would prefer that this investment is done on a long term basis. This is because securities are meant to be a cash raising initiative and the more cash they have the better it is for them.

Furthermore the longer the period of time that they are allowed to hold the cash the easier it is for them to invest it. This means that the industry has come up with a formula that rewards those who invest a lot and those who invest regularly for a long period of time.

This will prove to be crucial when you are trying to decide which security is appropriate for your needs. Setting aside the obvious considerations of your personal needs, you will need to appreciate that you will become part of an industry that is entirely based on perception. The value of your shares is not intrinsic. It is a reflection of how much value other people in the market place on that share. This means that you can either make a loss or a profit depending on how the market reacts.

Instability is an overriding concern
That is why when there is a stock exchange collapse, many people are devastated. Nobody goes into the securities market hoping to make a loss. They just take a gamble that that security will be worth a certain amount of money in a given period of time. This is s gamble and therefore it has the capability of going spectacularly wrong. A single natural event can wipe off billions from people’s savings even if the disaster did not affect the investment itself directly.

There are people who spend the whole day looking at the fluctuations of the Dow Jones because their whole life’s work depends on the feelings of other people. They then talk of jittery investors as if it were some scientific phenomenon. When the Dow Jones was hit by a particularly rough patch, some people appealed to President Barack Obama for guidance. He responded that he could not make government policy on the whims of the fluctuations of speculative investors. Many republicans accused him of heartlessness but I can see his point.

Conclusion
The degree of liquidity of some securities means that those investors who own them can completely manipulate the market according to their personal whims. Whenever something happens that they do not like, they immediately think of switching allegiance and go for something else. The liquidity in their securities means that they can easily do this without major repercussions.

That is why the financial institutions will try to create barriers to the liquidity of securities. They work in the hope that they can discourage some people from buying for short term speculative purposes. The solid long term investor is a much more reliable resource. Logic then dictates that all factors remaining constant, the value of a security has an inverse relationship to its liquidity.