At the beginning of the year, I bought a beautiful, low-mileage AWD Maserati. I did everything right: got a thorough inspection, researched what extras the car might need and exercised patience throughout the process. The only challenge was the lack of comparable vehicles for sale, which made price discovery difficult. Still, I negotiated the price down to what I felt was fair value, then invested in new tires and gave it a striking wrap.

Six months later I came across another sports car I had always wanted. The deal was too good to pass up, so I bought it, confident that selling my Italian beauty would be easy. However, the same challenge resurfaced: Maseratis are quite rare in Alberta and there were still no real comparables to help set a price. And typically, people shy away from what they don’t know. Suddenly, I found myself owning two cars when I only wanted one. It reminded me of a great piece of advice I once heard from a realtor: “If it’s hard to buy, it’s going to be hard to sell.”

This experience is remarkably similar to investing in low-volume stocks or private businesses operating in niche markets. In the world of investing, liquidity or the ability to buy or sell an asset without significantly affecting its price is often taken for granted in large, well-traded markets. But when you venture into thinly traded stocks, microcaps or private companies, the lack of buyers and sellers can make it extremely difficult to determine fair value or to exit your position efficiently.

In these types of markets price discovery is more art than science and the spread between what buyers are willing to pay and what sellers are asking can be wide. Investors may find themselves holding an asset that looks attractive on paper but is difficult to sell without taking a significant discount, especially if a quick sale is needed or if market sentiment shifts.

In Canada, this challenge is particularly relevant in several segments. The Canadian public markets are home to a large number of junior and mid-cap companies, many of which trade at low volumes and have few direct comparables. These stocks can be highly volatile, and their prices may not reflect underlying value due to the lack of active trading. Similarly, the Canadian venture capital and private equity landscape is filled with small and mid-sized businesses that operate in specialized industries — think technology startups, boutique manufacturers or agricultural enterprises. These investments can offer tremendous upside but the path to liquidity is often uncertain and exits may depend on finding a strategic buyer or waiting for a rare window of opportunity.

Looking back, maybe I shouldn’t have bought that other car and just been happy with what I had, which was everything I’d hoped for: fun, luxury and year-round capability. Sometimes, the urge to upgrade or chase the next “deal” can cloud your judgment. Don’t be greedy.

When there’s a lack of market depth, price discovery becomes challenging and selling turns into a niche situation, and one that requires a special buyer who recognizes the value. As a result, I’ll likely have to take a loss, selling at about 25 per cent below my cost in just six months. My large loss will be someone else’s large gain. But these situations often provide the best life lessons: In illiquid markets, patience and flexibility are just as important as due diligence.

Whether it’s a rare car, a low-volume stock, or a private business investment with few comparables, the same principle applies. When markets are thin and buyers are scarce, it’s easy to get stuck with an asset that’s hard to value and even harder to sell. In these cases, the true cost of ownership isn’t just what you pay to get in, it’s what you may have to give up to get out.

For investors the key takeaway is to be mindful of liquidity risk. Before committing capital to a low-volume stock or a private business, consider not just the potential upside but also your exit strategy. Ask yourself: Who will buy this from me if I need to sell? How long might it take to find a buyer? What kind of discount might I have to accept to close a deal quickly? In some cases, the best opportunities are found in these less-travelled corners of the market, but only if you’re prepared for the unique risks they entail.

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In the end, whether you’re buying a rare car, a microcap stock or a stake in a private company, the principles are the same: do your homework, understand the market dynamics, and be prepared for the possibility that liquidity may not be there when you need it most. Sometimes, the cost of rarity is not just the price you pay to get in, but the price you accept to get out.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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