Orpheus and Eurydice is an ancient Greek legend. It tells the story of Orpheus, the son of Apollo, whose lyre-playing skill was legendary. He falls in love with and marries Eurydice, but she dies after being bitten by a snake. Orpheus descends to Hades, the underworld, to bring her back, a bid which ultimately ends in tragedy.
The key moment
Pluto, ruler of Hades, is moved by Orpheus's music, and agrees that he can return with his wife to the land of the living on one condition. Eurydice shall follow Orpheus out of Hades, but he must not turn to look at her until they have completed the ascent. At first, Orpheus obeys. But he grows convinced that Pluto has tricked him, and so turns around. He watches in horror as Eurydice fades back to the land of the dead.
Lesson for investors
Just as patience is good for your investments, so impatience can cost you dear. To take full advantage of the high potential returns on offer from illiquid investments (those that are difficult to buy or sell easily), you must resist the temptation to sell them at the first sign of bad news. Just as Eurydice vanished when Orpheus turned to look at her, selling illiquid assets after a short period could result in a large chunk of your returns being eaten up by the high transaction costs associated with illiquidity. If you prefer to focus on short-term trading, stick to liquid assets.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Other financial wisdom
As Orpheus came close to finding out, if you are patient enough, illiquid assets can be a good investment because they trade at a discount to those that are more liquid. Several studies have confirmed this link between illiquidity and returns. For example, Yakov Amihud of NYU and Stanford's Haim Mendelson found that, from 1961 to 1980, stocks with a relatively large 1.5% spread (the gap between buying and selling prices) returned roughly 0.45% a month more than the wider market. A similar study by Wharton's Marshall Blume and Roger Stambaugh suggests that illiquidity explains why shares in smaller companies tend to outperform those of larger companies.
-
University tuition fees will rise to £9,535 next year – what does it mean for you?The tuition fee hike has angered many students, not to mention their parents and grandparents who often help with financial support. But will it make a difference to how much you repay in the long run?
-
Will platinum and palladium rise?Analysis Platinum and palladium have lagged gold and silver recently, but the outlook is improving. Should you invest?
