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FP Article 15.6 (To sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

Investment Risk - Industry Risk

by Rajen Devadason

In the ordinary business of life, industry can do anything which genius can do, and very many things which it cannot.

Henry Ward Beecher

  The English word 'industry' is a wonderful one that conjures forth visions of honest, hard work creating wealth and value, and bringing meaning to life.

That's why it is rather surprising that within the realm of investment risk, there is such a phenomenon as industry risk.

However, this form of investment risk has nothing at all to do with the dangers of hard work - for there are none!

It has to do with something very different.

 

 

 

 

 

 

 



Industry risk refers to the dangers to a particular stock that stem not from problems with the company per se but rather from far more wide ranging issues involving the entire industry that the company belongs to.

This is an article explaining industry risk. I hope you enjoy reading it. But if it isn't what you're looking for, you're welcome to search for something that better meets your needs. Thank you for allowing me to serve you.

Rajen Devadason

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A simple, fictitious example of a portfolio being hit by industry risk might be what could happen to the oil majors in the extremely unlikely event that a radically successful type of solar cell is invented that overnight alters the power usage profile of our planet.

The ensuing collapse in oil prices to, say, under $5 a barrel (I said the example was fictitious!) would hurt every company in the oil industry.

Moving from science fiction to historic fact, the invention of the horseless carriage followed by Henry Ford's tremendous capacity for industry (pun intended) hammered a flurry of sharp nails into the respective coffins of the horse-drawn carriage industry and the horsewhip industry.

To avoid exposing yourself to industry risk, the easiest thing you can do is invest in a well-managed pooled investment like a mutual fund or unit trust fund.

Such action will protect you from industry risk unless you make the mistake of purchasing only targeted industry-specific funds that subsequently suffer a meltdown because of some industry wide cataclysm.

These things happen again and again, which is why investing exclusively in just a small number of technology counters is often not a great idea.

If you'd like to continue to learn more about other types of investment risk, here's additional information for you...

15 Types of Investment Risk (OR, to sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

1. Borrowing Risk

2. Company Risk

3. Credit Risk

4. Currency Risk

5. Diversification Risk

6. Industry Risk

7. Inflation Risk

8. Interest Rate Risk

9. Liquidity Risk

10. Lost Opportunity Risk

11. Manager's Risk

12. Market Risk

13. Market Timing Risk

14. Political Risk

15. Prepayment Risk

 

 

© Rajen Devadason

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Rajen Devadason, CEO RD WealthCreation Sdn Bhd & RD Book Projects
349, Desa Rasah, Jalan Bayan 7, 70300 Seremban, NS, Malaysia
Tel/Fax: +606 632 8955

 
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