Editor’s note: This article was first published in May 2013. “Yesterday, Tuesday” refers to 30 April 2013; the Bankia move (up to +700% intraday, closing +190%) and the forecast that the share would keep falling toward €1 or below are from that week. Bankia later did a reverse split (2013) and was absorbed by CaixaBank in 2021.
It has always been said that in business, only entrepreneurs who are willing to take on big failures achieve big successes. Exactly the same applies to investing in the stock market: only investors who are willing to take big risks will get big returns. Risk is healthy, and perhaps a bit of madness is too, but recklessness will do us no good.
Take what happened yesterday, Tuesday, with Bankia’s share price, which shot up as much as 700% intraday before closing the session up 190%. It’s clear it was a profitable day for some investors, while for others it was an absolute disaster. It helps us understand the difference between risk, madness and recklessness.
I saw Bankia rising a little over 80% first thing in the morning. I thought: “Wow, you’d have to be a real risk-taker to buy into that stock.” The thing is, it kept climbing, and just as it was starting to look good—it was up more than 125%, with decent prospects—I took a deep breath and went for a coffee.
When I came back, Bankia was up 350%, and that’s when I said to myself: “You’d have to be crazy to get in there,” mostly because a single wave of selling can wipe out 50% of your investment in a matter of seconds.
I then watched it go through gains of 500%, 600% and 700%, and I said to myself: “Just wait and see what happens to the reckless ones who get in now.” Obviously, anyone who bought at that level lost money, some of them a great deal, because with a stock that volatile, even if they cut their losses, those losses would be significant.
Of course, that is exactly where the investment opportunities are. Some people only see trades like this once in a while. To give you an idea, if we had timed the entry right, €1,000 invested could have earned us €6,000. It’s eye-catching, but you have to accept the risk of speculating with a stock like Bankia, which is still going through capital increases and whose price will keep heading toward the €1 mark or even below.
I’m sure we’ll see this “Bankia-style” move in this stock again. When it happens, you can be the risk-taker or the crazy one, but before you hit the buy button, ask yourself whether you’re the reckless one. I imagine a lot of people will now be saying “if only I’d known, if I’d just made the call, etc.” Maybe I’ll even think it myself, but I believe staying on the sidelines in this kind of trade is the best option. However high the returns may be on a stock driven by professional speculators, for everyone else the risk isn’t worth it.
At least, that’s my opinion.
Featured image: Adrian from Madrid, Spain, CC BY 2.0, via Wikimedia Commons.
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