Maybe some of you have grown tired of the recommendations to diversify your portfolio and scale in gradually into new positions. I know, it’s not especially exciting. But, as the case of HQ Bank has shown today, it pays off big time.
Earlier today the Swedish Financial Supervisory Authority, Finansinspektionen (FI), revoked HQ Bank’s licence. The bank has grossly breached the most central provisions of Swedish legislation and FI will apply for the company to be entered into liquidation.
HQ Bank is traded on NASDAQ OMX in Stockholm. Last Friday the stock closed the week at SEK 55,50. What the price will be on Monday is hard to tell. HQ Bank may be sold to another operator before trading starts. It may also enter liquidation and some money could be returned to the shareholders. Most likely the stock will crash. If you are a HQ Bank shareholder that will hurt. Not only may you find out that your HQ Bank shares are worth 90% less on Monday than they were last Friday. That loss will also impair your future return severely. Let’s hope you are not one of those guys who go “all in” one stock, possibly also with borrowed money. Then you are toast.
I don’t own any HQ Bank stock directly. But I do have Investment AB Öresund in my portfolio. Öresund is an investment company with about ten major holdings, of which HQ Bank is one. According to their last portfolio statement from July 31st HQ Bank constitutes about 6% or SEK 8,00 of their net asset value. This makes me an indirect stock holder of HQ Bank. It also makes me very diversified and much less exposed to events such as the current HQ Bank scandal. This is a strong argument for investment companies or trusts with a good track record.
I also try to avoid the temptation to buy all the shares I would like to have in a specific stock at once. I rather scale into my positions. In the case of Öresund, I have so far only bought about a third of the shares I would like to have at this stage. This allows me to take advantage of the market fluctuations and especially from company specific events such as the current one. Most likely Öresund will also be affected on Monday. Should the stock price decline more than I think is reasonable, I have plenty of dry powder to use.
And lastly, of course Öresund is only a small part of my portfolio as a whole. Don’t just have one nest egg, have several!
How do you deal with your risk management?