There is simply no company out there that has a stock safe enough for you to invest in just that one and nothing else. Even tried and true utility stocks demand diversification in your portfolio. There is no better example than what is happening to PG&E right now.
PG&E is the California utility being alleged to have caused some of the wildfires there. Despite being a “widows and orphans” staple, the stock has plunged and the company has announced it will file for bankruptcy. Juliet Chung and Nicole Friedman report in the Wall Street Journal:
Utilities have long been considered ultra safe bets. But PG&E Corp.’s PCG -27.09%announcement Monday that it will file for bankruptcy is teaching investors that isn’t always true.
The Baupost Group LLC, Viking Global Investors LP and BlueMountain Capital Management LLC were among the hedge funds that snapped up shares of PG&E PCG -29.00% Corp. during the third quarter of 2018, just before the deadliest wildfire in California history triggered an existential crisis for the state’s largest utility.
That crisis entered a new phase Monday when PG&E said that it intends to seek chapter 11 bankruptcy protection by the end of the month due to more than $30 billion it faces related to its role in sparking deadly California wildfires in 2017 and 2018. That sent its shares down 52%. Shares have now fallen 83% since the fire began on Nov. 8 and bonds are down 25%. The price of PG&E bonds due in 2034 fell about 8% Monday, according to MarketAxess.
The decline of PG&E reinforces the notion that no industry is insulated from unexpected volatility that can create huge losses for investors. Insolvency means PG&E stockholders could have their shares wiped out and bondholders could also be hit.
You can learn more on the benefits of diversifying your portfolio here in Risk and Reward: An Efficient Frontier.
Read more from Chung and Friedman here.