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Golden Rule #6 - Market Capitalisation and Liquidity

At some point an investor will wish to sell their share investment. To ensure they are able to sell the entire holding at any time, we suggest that the average 'daily volume traded' figure is at least five times the exposure level.

Traditionally larger stocks tend to be less volatile and have a greater volume traded than your portfolio. That is because they have broader revenues streams, and therefore more stable earnings, and generally more stable share price and dividend history. Investors should select companies of a size appropriate to their risk profile.

Golden Rule #6 - Market capitalisation plays an important role in the selection process for investors who are volatility averse and generally tend to be income seeking investors.

Volatility averse investors value the inherent strength larger business provide them with the diverse revenue streams and historical performance. While a company being big should not be the sole reason it is considered safe, it does provide a degree of comfort for those who may be concerned by smaller companies where share price shifts can be more volatile and the impact of one negative event significant on the overall performance of the company and ultimately its ability to pay a dividend.

When assessing for Star Growth Stock eligibility, a different set criteria is imposed for companies with a market capitalisation of less than $200 million to companies larger than $200 million (see Golden Rule 2 for more information on these criteria). This criteria does not apply when rating Star Income Stocks.

We will generally not analyse a stock if its average daily traded is less than $50,000.

 

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