Why This Matters
Making money is important. Keeping it is essential. Risk management (gestão de risco) is the discipline that ensures a single bad event does not wipe out years of gains. In Angola’s market, with its concentrated stock universe, sovereign credit risk, currency volatility, and high inflation, risk management is not optional — it is survival.
The Fundamental Rule: Never Risk Ruin
The first rule of investing is: do not lose all your money. The second rule is: do not forget the first rule. This sounds obvious, but many investors violate it by concentrating too heavily in one asset, borrowing to invest, or ignoring warning signs.
A 50% loss requires a 100% gain to break even. A 90% loss requires a 900% gain. The mathematics of loss are brutal and asymmetric — preventing large losses is far more important than capturing large gains.
Position Sizing
Position sizing answers: “How much of my portfolio should I put in any single investment?”
The 5-20% Rule: No single position should exceed 20% of your total portfolio. For most investors, 5-15% per position is appropriate.
Formula for position size: Maximum Position = Portfolio Value × Maximum Position Weight
If your portfolio is Kz 20,000,000 and maximum position is 15%: Maximum per position = Kz 3,000,000
For Angola specifically: Given only 5 listed stocks, pure equal-weighting gives 20% each — already at the upper limit. Complement equities with bonds and deposits to reduce per-position concentration.
Diversification as Risk Management
Diversification works because different assets respond differently to the same event:
When oil prices fall:
- Government bonds: Risk increases (fiscal pressure) — potentially negative
- Bank stocks: Moderate risk (economic slowdown affects loan quality)
- USD-indexed bonds: May benefit (Kwanza weakens, USD-indexed payments rise)
- Bank deposits: Unaffected in nominal terms
When BNA cuts interest rates:
- Government bonds: Prices rise (inverse relationship) — positive
- Bank stocks: Mixed (lower margins but higher economic activity)
- Deposits: Returns fall with new lower rates
No single asset performs well in every scenario. By holding a mix, you dampen the impact of any one scenario.
Correlation in Angola’s Market
Correlation measures how closely two assets move together. In Angola:
- Bank stocks are highly correlated with each other (BAI, BFA, BCGA move similarly) — diversifying across banks provides less risk reduction than diversifying across sectors.
- ENSA has lower correlation to banks — insurance has different profit drivers.
- USD-indexed bonds have negative correlation to Kwanza depreciation events — they zig when Kwanza zags.
- Treasury bonds and stocks have moderate positive correlation — both benefit from economic stability.
The most effective diversification combines assets with low or negative correlation: Kwanza bonds + USD-indexed bonds + equities + deposits.
Setting Loss Limits
Determine in advance how much you are willing to lose on any single position before selling:
Stop-loss (Limite de perda): “If BAI falls 20% below my purchase price, I sell.” This prevents small losses from becoming devastating ones.
For a Kz 1,500,000 BAI position (1,200 shares at Kz 100,500):
- 20% stop-loss: Sell if price reaches Kz 1,000 → maximum loss Kz 300,000
- 30% stop-loss: Sell if price reaches Kz 875 → maximum loss Kz 450,000
Important caveat for Angola: BODIVA’s limited liquidity means stop-losses may not execute at your exact price. In practice, monitor positions regularly and be prepared to sell manually rather than relying on automated stops.
Portfolio-level limit: “If my total portfolio falls 15% from its peak, I reduce risk by moving 20% of equities into bonds.” This protects against broad market declines.
Stress Testing Your Portfolio
Ask: “What happens to my portfolio if…?”
| Scenario | Kwanza Bonds | USD Bonds | Equities | Deposits | Total Impact |
|---|---|---|---|---|---|
| Oil falls 30% | -5% | +8% | -15% | 0% | -4.5% |
| BNA raises rates 3% | -8% | -3% | -10% | +2% | -5.2% |
| Kwanza depreciates 15% | -2% real | +13% | -5% | -2% real | -0.5% |
| Banking crisis | 0% | 0% | -40% | At risk | -12% |
A portfolio that can survive all these scenarios without catastrophic loss is properly risk-managed.
Worked Example: Risk-Managed Portfolio
Alberto has Kz 25,000,000 and wants to limit maximum portfolio loss to 15% under any plausible scenario.
Allocation:
- Kz 8,000,000 in Kwanza OTs (32%) — max loss scenario: -8%
- Kz 5,000,000 in USD-indexed OTs (20%) — provides hedge in depreciation scenarios
- Kz 7,000,000 in BODIVA equities (28%) — 20% stop-loss on each position
- Kz 5,000,000 in bank deposits (20%) — near-zero risk anchor
Worst-case scenario (banking crisis + Kwanza depreciation):
- OTs: -2% (Kz 160,000 loss)
- USD bonds: +13% (Kz 650,000 gain)
- Equities: -20% (stop-loss triggered) = Kz 1,400,000 loss
- Deposits: 0% nominal
Net portfolio impact: -Kz 910,000 = -3.6% portfolio loss
Even in the worst combined scenario, Alberto’s maximum loss is well within his 15% limit because of diversification and stop-losses.
Key Takeaways
- Never risk ruin — protect against catastrophic losses above all else
- Limit any single position to 5-20% of your portfolio
- Diversify across asset classes, currencies, and (when possible) sectors
- Assets with low correlation provide the most effective diversification
- Set stop-losses on individual positions and drawdown limits on the portfolio
- Stress test your portfolio against plausible adverse scenarios
- Risk management is not about avoiding risk — it is about taking the right amount of risk for your goals
Common Mistakes
No stop-losses — Hoping a losing position will “come back” is the most expensive hope in investing. Set limits before you invest and honor them.
Diversifying only within equities — Owning all 5 BODIVA stocks is not diversified because they are all Angolan financial companies. True diversification requires different asset classes.
Ignoring tail risks — Planning for average scenarios but not extreme ones. Angola has experienced currency crises, oil price collapses, and banking sector stress. Your portfolio must survive these, not just normal conditions.
What’s Next
One of the highest-return opportunities in Angola comes with IPOs — new companies listing on BODIVA. The next lesson teaches you how to analyze and participate in IPO offerings.
Next Lesson: IPO Analysis — Evaluating New BODIVA Listings
Assess your risk tolerance with the Risk Profiler. Build stress-tested portfolios with the Portfolio Builder.