02. Company risk

What is Company risk? (also known as Business risk and Business failure risk)

The risk that you will lose money simply because you chose to invest in a certain company and going forward it does poorly.

How this risk plays out in the real world

Jul 25, 2018: Facebook plunges 20% as revenue, user growth disappoint
Jun 25, 2028; Toys ‘R’ Us will close for good this week
Mar 06, 2017: Snapchat Stock Price Begins to Disappear, Tanks Over 12%
Nov 08, 2016: GoPro recalls Karma drone after power failures, shares drop
Sep 04, 2016: Abercrombie & Fitch’s attempts to rebrand have totally backfired
Oct 15, 2015: Walmart’s Disappointing Sales And Earnings Spell Doom For The Industry
Sep 17, 2014: Sony forecasts job cuts and $2B loss as smartphones lag
Mar 04, 2014: Radio Shack announces plans to close 1,100 stores nationwide
Sep 20, 2013: BlackBerry to lay off 4,500 employees, or 40 percent of global workforce after announcing staggering $1 billion loss
Jun 25, 2013: Barnes & Noble abandons Nook tablets after heavy losses

Connection to other risks

Company risk encompasses Execution risk and Timing risk because both of these pertain to issues having to do with the company.

Learn more

Visit the Corporation types page.

How investors can manage this risk

  1. Don’t put too much money into any one corporation’s stock.
  2. For each stock you purchase, set a “stop”, a price below which if the share price falls, your broker will automatically sell your shares. This will prevent you from suffering large losses.
  3. Invest in mutual funds, index funds, and etf’s, each of which buys you a piece of dozens to a hundred or more corporations that the fund holds.