FP Article 15.6
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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
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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
