‘Tiger cub’ hedge fund Archegos Capital was forced to sell over $20B in stocks Friday afternoon. This caused several stocks that the hedge fund had owned including ViacomCBS Inc. (VIAC) and Discovery Inc. (DISCK) to drop massively Friday afternoon, which probably left individual investors that owned these stocks feeling completely blindsided. Here’s how the 3 month chart for VIAC looks on morningstar right now:
At first you might be thinking, ok no big deal some hedge fund had to sell these shares surely others will see they are heavily discounted and buy them again, right? Well it’s now Tuesday morning and most of these stocks still have not gained back the majority of the market cap they lost last week.
This is a classic example of why it is riskier to own individual stocks than it is to invest in ETFs or mutual funds. With ETFs, you don’t always get the gains you might see by owning an individual stock, but the downside is things like this can happen. On the other hand, ETFs are usually made up of hundreds or thousands of different stocks, so the odds of something like this happening are much lower. In this case none of these companies had a bad earnings report or did anything wrong, they just made up a significant amount of a portfolio in a hedge fund that ended up getting margin called.
I have to admit that seeing this happen was a bit of an eye-opener for me, however I’m still planning on owning individual stocks. In my case I’m not looking to retire for at least another 10-20 years so short term events like this wouldn’t matter as much to me. On the other hand if I were close to retirement or already retired, it would probably be worth taking a look at.