Understanding Stock Market Risks - No 7 Risk

Understanding Stock Market Risks - No 6 Risk

This Great Bear of 2008 taught me there is another risk to think about:

7. Dilution Risk

Even if you only invest in blue chips that are strategically important to Singapore and the government will never allow them to fail. So there is very little risk of complete failure but you are still expose to the dilution risk i.e. your interests in your holding get diluted by these companies injecting more capitals to strengthen up their balance sheets by raising more capitals through private placement or right issues.

Private Placement to Institutions

You either get out or get diluted. If you have decided to hold on; then it may take a long while for your current holding to get even.

Right Issues

Same here. You can choose to get out or exercise your option to prevent your current holding been diluted by subscribing to all your entitled right issues to hold it at higher investment cost.

If you don't, then your interests will take a long while to get even.