ProfyB (90.07)

Low Volume on RMCF

October 15, 2009 – Comments (2) | RELATED TICKERS: RMCF

I noticed that Rocky Mountain Chocolate Factory's stock doesn't move much.  On Tuesday, not a single share was traded until almost two hours after the market opened.  Google lists the average volume at 10,000, but that's because the past few days has brought it down.  Today the volume was only 3,358 shares.  Rounding up to $9 a share, that's less than $30,000 worth of trades in a single day.  I'm not used to being in a stock where a single trade of mine could affect the stock price and it has some interesting aspects to it. 

First off, it seriously affects my ability to buy/sell shares.  Low volume means there are few buyers and/or few sellers at the current price.  Ideally I wouldn't want to get out of the stock unless I find that my reasons for investing were faulty so that's not too much of a problem.  If some negative event happened that would cause me to dump shares, I assume others will get to it first and the price would drop to a point where I would have to reconsider.  As for buying new shares, the asking price is about 2% above the last trade.  A 2% premium for a long term investment isn't much to fret about, especially when it's still below what I think the intrinsic value of the company is.

The second aspect is that there is less price information to go on.  The difference between RMCF's bid/ask is almost 5% of the current stock price.  Who knows how many shares are available for those prices and what the new bid/ask would be if I bought or sold shares.  This exemplifies the notion that stock prices are a poor way of valuing stock holdings.  More importantly, it forces me to trust my judgement on the intrinsic value of the company.  While I know I should always do this, it's hard to avoid the level of price information that is available and let my emotions get the better of me.  Low volume is forcing me to keep my resolve and make the intelligent decisions.