FP Article 15.2
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FREE
16-lesson eCourse on Investment Risk, please
click here.)
Investment Risk -
Company Risk
by Rajen Devadason
Business will be better or worse.
Calvin Coolidge
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The
richest people in the world, titans
of industry like Bill Gates and
Warren Buffett, have grown rich
through the success of their
companies.
For regular retail
investors, the best way to gain
access to such investment
opportunities is, predictably, to
purchase partial ownership of great
companies.
If you do the
same, and get it right, you could
end up very rich. But the failure
rate of private companies is very
high. What about public listed ones? |
The failure rate of such listed business
entities is a lot lower. But... it can still
happen.
This means we need to be careful
when buying (or buying into) companies. You've
probably heard many times that in the long run
equities offer the best returns. That is
correct. But there is a risk.
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This is an article explaining
company 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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That risk is completely understandable.
Capitalism thrives through a process of creative
destruction - a constant churning of business
transactions generated by a plethora of business
decisions... some great, some so-so, some lousy!
This, then, is the bottomline:
Equities offer the best long-term returns of all
investment classes but there is a price that
must be paid by those who wish to play in the
richest game on the planet.
The price is simply that business
owners have perpetually faced - and will always
continue to face - unique challenges to the
viability of their companies.
Company risk, therefore, refers
to the chance that a problem specific only to a
particular company that you have invested in
will deeply injure its economic attractiveness.
Because such events are by
definition restricted only to the company we're
talking about, the best way to deal with
specific company risk is to diversify your
ownership of equities into pooled investments.
You do so by adding carefully selected equity
mutual funds or equity unit trust funds to your
portfolio.
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
