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Quote of the day by Myron Scholes: "At times of shock, converting illiquid assets to cash to build flexibility is very expensive. Finding an umbrella in a rain storm might be impossible or very costly."
Economic Times 2 hrs ago·5 Aug 2026, 9:34 am
Nobel laureate Myron Scholes has highlighted a critical risk for investors during market downturns: the high cost of liquidity. Scholes argues that when markets are in shock, converting illiquid assets into cash to handle emergencies becomes very expensive. This often forces investors to sell assets at a significant discount just to meet obligations.
This situation matters because it can turn a temporary dip into a permanent loss. Investors who lack sufficient cash reserves may be forced to sell quality holdings at the worst possible time. To protect against this, maintaining adequate liquidity and diversifying your portfolio is essential. This strategy provides the flexibility needed to avoid making hasty, costly decisions during periods of extreme volatility.
Moving forward, investors should focus on building a cash buffer. This ensures that if an emergency arises, you are not forced to liquidate investments at a loss. Keeping a portion of your portfolio in liquid assets allows you to weather the storm without compromising your long-term financial goals.
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- Category: Stocks.
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