What is Company risk? (also known as Business risk, Business failure risk and Single stock risk)
The risk that you will lose money simply because you chose to invest in a certain corporation and going forward it does poorly.
How this risk plays out in the real world
Sept 29, 2019: Forever 21 files for bankruptcy, will close up to 178 stores in U.S.
Feb 22, 2019: Kraft Heinz shares plunge more than 28% after $12.6B loss, SEC investigation and dividend cut
Jun 25, 2018; Toys ‘R’ Us will close for good this week
Jan 09, 2018: GoPro’s Karma Drone Is Officially Dead / GoPro stock plunges after poor earnings report
Apr 05, 2017: Shoe chain Payless files for bankruptcy protection, closing 400 stores
Nov 08, 2016: GoPro recalls Karma drone after power failures, shares drop
Sep 04, 2016: Abercrombie & Fitch’s attempts to rebrand have totally backfired
May 18, 2016: Sports Authority to close all remaining stores
Jan 05, 2016: Why Fitbit Shares Fell 18% Today
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
May 02, 2008: Linens ‘n Things files for bankruptcy
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.
Visit the Corporation types page.
How investors can manage this risk
- Don’t put too much money into any one corporation’s stock.
- 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.
- 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.