Argo Blockchain (LSE: ARB) shares were a popular investment when growth stocks were in favour during the pandemic. Many investors viewed the shares as a way to capitalise on the explosive rise of Bitcoin.
Unfortunately though, the crypto miner has produced disappointing investment returns lately. If I’d put my money into the stock a year ago, I’d now be facing massive losses.
Argo Blockchain shares have tanked
This time last year, Argo Blockchain shares were trading at around 120p. Today however, they’re changing hands for just 15p. That represents a decline of around 88%.
What this means is that if I’d put £5,000 into the growth stock a year ago, my money would now be worth around £625 (ignoring trading commissions). That’s a nasty loss.
Of course, looking at one-year performance only doesn’t tell the full story. If I’d put £5k into the stock four years ago, shortly after the company’s Initial Public Offering (IPO), I’d now be sitting on a healthy profit.
Assuming I picked up shares for around 7p, my £5,000 investment would now be worth about £10,700. So long-term investors have still been rewarded here.
However, anyone who bought the shares after its big spike in early 2021 will be feeling some pain right now.
How to avoid big losses with growth stocks
One key takeaway from the recent performance of Argo Blockchain shares is that it’s crucial to ‘right-size’ your stock positions relative to their risk levels.
Argo Blockchain was always a high-risk, speculative stock due to its exposure to Bitcoin – which is notoriously volatile – and its lack of competitive advantage (literally anyone can mine Bitcoin). And the stock had had an enormous rise early in 2021, pushing its market-cap to very high levels (increasing the investment risk).
Now investing in high-risk, speculative stocks is fine. Because they can potentially deliver great returns. However, investors need to give a lot of consideration to risk management when buying these kinds of stocks as they can crash badly if things go wrong. You don’t want to be in a position where one big loss blows up your entire portfolio.
If I’d had invested just 1% of my overall portfolio in Argo Blockchain shares a year ago, the 88% loss here wouldn’t be the end of the world. The large decline wouldn’t have had too much impact on my overall portfolio.
However, if I’d invested 30% of my portfolio in ARB shares, the impact on my portfolio would have been significant. The chances are my overall portfolio would have taken a huge hit.
By right-sizing the position, and keeping it small relative to my overall portfolio, I could have dramatically reduced my losses.
I’ll certainly be keeping this in mind as I add more speculative growth stocks to my investment portfolio in the years ahead.
The post If I’d invested £5,000 in Argo Blockchain shares 1 year ago, here’s how much I’d have now appeared first on The Motley Fool UK.
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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022