The economy alternates between periods or cycles of growth and contraction (aka recession). When the economy moves from contraction to expansion, businesses and governments that had been holding off on construction projects and other investments give the go-ahead and buildings, bridges and roads are built.
As the economy evolves, certain areas expand faster than average while others dwindle. Which would you consider the technology sector? It’s growing rapidly, of course. Corporations that compete in these sectors must emerge as one of the leaders because markets only have room for a few companies. What do we mean? Can you name the
Let’s say that a corporation provides natural gas for heating and cooking to homes on a populated island through a network of pipes laid under the island’s streets. The company is in an interesting situation. On the down side, it doesn’t have opportunities to grow. On the upside, it doesn’t have much competition. For a would-be
These corporations sell things we need. Food comes to mind, of course, but also fuel, prescription drugs, and “consumer staples” like toothpaste, soap and laundry detergent. We even need the services of funeral homes to bury our dead!
What is Market risk? The risk that during the normal lurches upward and slides downward that markets experience, you’ll have to sell some investments when the markets are down.
What is Execution risk? The risk that a corporation will not be able to pull off something ambitious it has announced its intention to do. It might be a revolutionary new product, trying to turn a struggling corporation around, or trying to successfully take over a competitor with a very different culture.
What is Systemic risk? (also known as Systematic risk) The risk that a breakdown of the American or global financial system will cause panic selling and major losses for investors, no matter the type of investments they hold.
What is Country risk? (also known as Global Investment risk and International Investment risk) The risk that you will suffer a loss investing in a foreign country due to something about that country that doesn’t exist or occur in the United States. This can involve anything from economic and political instability to the lack of
What is Longevity risk? The risk that in retirement you will consume the wealth you saved up before you pass away.
What is Timing risk? The risk that something dramatic happens soon after you make an investment which causes it to plunge in value.