A company can have a recognisable name, a loyal customer base and an impressive business story without having its shares available on a stock exchange. That is part of what makes unlisted shares interesting to investors. They offer a way to explore businesses before, or outside, their presence on public markets.
But buying shares that don’t trade on an exchange is quite different from purchasing a listed stock. The difference becomes especially important when an investor wants to sell.
Finding a buyer isn’t always straightforward
With a listed stock, investors can generally place buy and sell orders through an exchange during trading hours. Whether an order gets executed depends on factors such as price and available buyers or sellers, but then there is an established marketplace for the transaction.
Unlisted shares work differently. Transactions often happen in private arrangements, not through the normal stock exchange order book. Finding someone willing to buy the shares at an acceptable price can take time.
This creates a practical problem. An investor might believe a company’s prospects have improved, yet still struggle to sell the holding when the money is needed.
The quoted price of an unlisted share should therefore not be treated as proof that the shares can be sold immediately at that amount.
A familiar company doesn’t make the investment simple
Unlisted businesses can attract attention because investors recognise their brands or have heard that a public listing may be on the horizon.
That interest can sometimes overshadow the work involved in valuing the business. Information available to investors may be less extensive or less timely than what is available for listed companies, making independent assessment more difficult.
There is also no certainty that a company will list on a stock exchange within a particular period, or at all. Even if a listing takes place, the eventual market price may be lower than the price paid in the unlisted market.
An expected listing is a possibility, not a guaranteed exit strategy.
The price you pay needs closer scrutiny
Unlisted shares may be offered at prices based on recent transactions, seller expectations, financial estimates or anticipated future demand. These figures can be difficult to compare because trading activity is often limited.
Before considering a purchase, investors should examine the available financial information, understand the company’s ownership structure and then also review the terms of the transaction. Transfer restrictions, applicable taxes and other costs can also affect the final outcome.
It is worth being particularly cautious when a price is justified mainly by rumours about a future listing or claims that demand is about to increase.
If the investment case depends on selling to another buyer at a higher price, the availability of that buyer becomes a significant part of the risk.
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Keeping track of unlisted holdings
Unlisted investments can also be harder to manage alongside ordinary stocks, fixed deposits and other financial assets, particularly when transaction records and documents are spread across different sources.
InCred has a dedicated platform called InCred Unlisted for holdings, transactions and related documents associated with its unlisted investment service. The platform’s separation from InCred Money’s broader investing app reflects the fact that unlisted investments have a different transaction process from ordinary exchange-traded stocks.
For investors, keeping the paperwork organised is useful, but it doesn’t remove the underlying challenges of valuation and liquidity. Access to a platform or transaction facility should not be confused with a guarantee that shares can be sold whenever desired.
Consider the exit before making the investment
Unlisted shares can provide exposure to businesses that are not available through the usual stock market order process. That may interest investors who understand the risks and can afford to leave their money invested for an uncertain period.
They are generally less straightforward for someone who expects to access the money at short notice.
Before buying, it helps to ask three practical questions: What information supports the valuation? What restrictions apply to transferring the shares? And what options might be available if the investment needs to be sold?
Those questions may not make the opportunity sound as exciting as a rumoured listing. They are, however, much more relevant to the decision.
With unlisted investments, buying is only half the transaction. Understanding how, when and at what price an eventual sale might happen deserves just as much attention.
