Chapter 1, Problem 22PS

Summary Introduction

There are many sector specific and even company specific risks in investing. In this article, however, we will look at some universal risks that every stock faces, regardless of its business.

Introduction:

Commodity Price Risk

Commodity price risk is evident for those companies who produce the commodities as well as those ccompanies who only use them as inputs for their business. For example when the prices of the steel goes up then this will automatically impact all the business who use steel as raw material for their business.

Headline Risk

Media headlines that publishes criticism regarding a company proves to be a great risk for a company since it will affect their stock prices greatly. For example when Johnson & Johnson was criticized by media for their use of cancer causing substances in their baby products it adversely affected the sales of the product.

Legislative Risk

It is the relationship the between the government and the business and when government takes any strict enforcement action against any business or industry then this adversely affect an investor's holdings in that company or industry.