Dividends and Key Takeaways from the collapse of Archegos Capital

Last month a firm from Hong Kong run by Bill Wang for family money lost a ton of money for itself and the prime brokers who were helping it. Goldman Sachs, Morgan Stanley, Credit Suisse and others lost money. What can be learnt from the collapse? Larry MacDonald at mcolumn@yahoo.com has some ideas:

  1. Small investors can compete against institutional and professional investors.

Archegos Capital had a portfolio of $10 billion leveraged to $50 billion to 8 stocks. The firm received a margin call, prices went down and the brokers sold the positions. The brokers were able to absorb the losses, which is a good thing for everyone.

2. In every regulations, some big investors or whales, will find a method to get around the regulations. In this case, as a family office, the regulations or reporting to authorities are less than hedge funds and security dealers. This was compounded by Archegos not owning the stock directly but through swaps or derivatives to increase leverage. The stocks were held by the security dealers.

3. The Archegos’s portfolio was based on a short squeeze. Stocks were heavily shorted and experience rapid gains and then the market collapsed. Carson Block of Muddy Waters said it appears Archegos went long because they thought they could squeeze the stocks, but there was no fundamental reason for the action to happen over a long period of time. Otherwords, once the price increased, Archegos should have sold to lock in capital gains.

4. Former Prime Minister of Britain Winston Churchill once said, “Never let a good crisis go to waste” The forced selling of the 8 stocks may have created opportunities for value investors. The 3 top companies wre Tencent Music Entertainment Group, Baidu, and ViacomCBS.

Linking to dividend paying stocks, the last takeway is something that all dividend buyers should do. Every day there are millions of people trying to figure out the best company and make money. As dividend buyers, you do not have to invest everyday, you can wait till your dividends built up, but when they do then you need to do your homework to see which opportunities you can invest in. There will always be companies shares going up and down, you will need to watch the down ones and what level they become good investments. The aspect you have is the time can be today or tomorrow or the next week. This is what homework is for to be able to invest at the correct price for you, then reap the rewards.

There are more questions than answers, till the next time – to raising questions.

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