Investing lessons from Sillicon Valley Bank collapse

Silicon Valley Bank is the talk of the town. What's going on? And what can it teach us about investing?

Shares in Silicon Valley Bank fell by 62% in pre-market trading today. Yesterday, the shares fell another 60% in premarket trading, per CNBC. Nasdaq decided to halt the trading of the stock.

Here's how the Wall Street Journal describes what happened: "The panic surrounding SVB kicked off Wednesday, when the company said it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock."

This prompted fear in Silicon Valley about the possibility of a bank run. Prominent VCs including Founders Fund, Coatue Management and Union Square Ventures all told their portfolio companies to stop using SVB, according to Bloomberg.

The key dynamic on display: the contagion of fear in markets. Even though this is easy to diagnose, it's difficult to stop. Some investors, like Bill Ackman, are floating the idea of a government bailout to ease fear in the markets.

For an individual investor, the SVB case also highlights the importance of diversification of investments — across individual equities and market sectors.

Sources

• CNBC - Silicon Valley Bank drops another 60% and is halted Friday as it’s shut down by regulators
• Bloomberg - SVB Races to Prevent Bank Run as Funds Advise Pulling Cash
• WSJ - SVB Stock Halted After Sharp Selloff; Bank Exploring Possible Sale