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Liquidity Is a Feature, Not a Given Paris, late afternoon. The screens are quieter than they were at the open, but the question that came up in three separate client calls today is the one that stays with me: If I need to reduce exposure quickly, can I actually do it at a fair price? It sounds simple. It is not. In a market that rewards patience and punishes hesitation, liquidity is the silent variable that separates a well-constructed portfolio from a fragile one. We spend hours debating entry points, valuation multiples, and macro scenarios—all important—but the moment a position needs to shrink, the only thing that matters is whether there is a buyer on the other side when you want to sell. What I Mean by Liquidity Risk Most investors think of liquidity as a binary: either a market is liquid or it is not. In practice, it is a spectrum that shifts with sentiment, time of day, and the size of your own footprint. A position that looks easy to exit on a Tuesday morning can feel very different on a Friday afternoon in a thin tape. For our portfolios, we do not assume liquidity. We test it. We ask: if we had to cut this position in half over three days, what would the impact be? If the answer is more than a few basis points, we either size down or build an exit plan before we need one. Three Disciplines We Apply Size with the exit in mind. Before adding to any position, we estimate the maximum size we could unwind without moving the market against us. That number becomes the ceiling, not the target. Monitor the bid-ask, not just the price. A wide spread is often the first warning that liquidity is drying up. We watch it as closely as we watch the level. Keep a cash buffer that feels uncomfortable. In a rally, cash feels like a drag. In a drawdown, it is the only thing that lets you act when others are forced to sell. The Macro Context We Are Watching Central banks have been clear that policy will stay restrictive for longer than many hoped. That means funding costs remain elevated, and leverage is more expensive to carry. In this environment, the market can turn from orderly to disorderly with little warning. We have seen it before—in 2018, in 2020, in the mini-flash events that never make the headlines but still hurt the unprepared. Our job is not to predict the next shock. It is to make sure that when it comes, we are not the ones scrambling for a bid that is not there. What Clients Should Take Away If you are building or reviewing a portfolio, do not only ask what you own and why. Ask how you would sell it. Ask what it would cost you to be wrong. Ask whether your positions are sized so that you can sleep through a week of volatility without being forced into a decision you will regret. That discipline does not guarantee returns. But it does guarantee that you stay in the game long enough to capture them. This content is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.