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

Commodity Price Risk

澳洲幸运5开奖号码历史查询:Commodity price risk is simply the risk of a swing in 澳洲幸运5开奖号码历史查询:commodity prices affecting the business. Companies that sell commodities benefit when prices go up, but suffer when they drop. Companies that use commodities 𒁃as inputs see the opposite effect. However, even companies 𝄹that have nothing to do with commodities, face commodities risk.

As commodity prices climb, consumers tend to rein in sp🌳ending, and this affects the whole economy, including the service economy.

Headline Risk

澳洲幸运5开奖号码历史查询:Headline risk is the risk that stories in the media will hurt a company's business. With the endless torrent of news washing over the world, no company is safe from 澳洲幸运5开奖号码历史查询:headline risk. For example, news of the Fukushima nuclear crisis in 20🧜11 punished stocks with any related business, ⛎from uranium miners to U.S. utilities with nuclear power in their grid.

One bit of bad news can lead to a market backlash against a specific company or an entire sector, often both. Larger-scale bad news—such as the debt crisis in some eurozone nations in 2010 and 2011—can puni෴sh entire economies, let alone stocks, and have a palpable 🐻effect on the global economy.

Rating Risk

澳洲幸运5开奖号码历史查询:Rating risk occurs whenever a business is given a number to either achieve or maintain. Every business has a very important number as far as its 澳洲幸运5开奖号码历史查询:credit rating goes. The credit rating directly affects the price a business will pay for 澳洲幸运5开奖号码历史查询:financing. However, publicly traded companies have another number that matters as much as, if not more than, the credit rating. That number is tꦿhe analyst's rating.

Any changes to the analysts rating on a stock seem to have an outsized psychological impact on the market. These shifts in ratings, whether negative or positive, often cause swings far larger than is justified by the events that led the analys💜ts to adjust their ratings.

Obsolescence Risk

Obsolescence risk is the risk that a company's business is going the way of the dinosaur. Very few businesses live to be 100, and none of those reach that ripe age by keeping to the same business processes they started with. The biggest obsolescence risk is that someone may find a way to make a similar product at a cheaper price.

With global competition becoming increasingly technology savvy and the knowledge gap shrinking, 澳洲幸运5开奖号码历史查询:obsolescence risk will likely increase over time.

Detection Risk

Detection risk is the risk that the auditor, 澳洲幸运5开奖号码历史查询:compliance program, regulator, or other authority will fail to find the bodies buried in the backyard until it is too late. Whether it's the company's management skimming money out of the company, improperly stated earnings, or any other type of 澳洲幸运5开奖号码历史查询:financial shenanigans, the maওrket reckoning will come when the n𝄹ews surfaces.

With 澳洲幸运5开奖号码历史查询:detection risk, the damage to the company's reputation may be difficult to repair, and it's even possible that the company will never recover if the financial fraud was widespread. Numerous examples include Enron, 澳洲幸运5开奖号码历史查询:Bre-X Minerals, 澳洲幸运5开奖号码历史查询:ZZZZ Best, 澳洲幸运5开奖号码历史查询:Crazy Eddie's, and the list goes on.

Legislative Risk

Legislative risk refers to the tentative relationship between government and business. Specifically, it's the risk that government actions will constrain a corporation or industry, thereby adversely affecting an investor's holdings in that company or industry. The actual risk can be realized in a number of ways—an antitrust suit, new regulations or standards, specific taxes and so on. The 澳洲幸运5开奖号码历史查询:legislative risk varies in degree according to industry, but 🐭every indust🌞ry has some.

In theory, the government acts as cartilage to keep the interests of businesses and the public from grinding on each other. The government steps in when business is endangering the public and seems unwilling to regulate itself. In practice, the government tends to ove𓄧r-legislate. Legislation increases the public image of the importance of the governme🎐nt, as well as providing the individual congressmen with publicity. These powerful incentives lead to a lot more legislative risk than is truly necessary.

Inflationary Risk and Interest Rate Risk

These two risks can operate separately or in tandem. 澳洲幸运5开奖号码历史查询:Interest rate risk, in this context, simply refers to the problems that a rising interest rate causes for businesses that need financing. As their costs go up due to interest rates, it's harder for them to stay in business. If this climb in rates is occurring in a time of 澳洲幸运5开奖号码历史查询:inflation, and rising rates are a commo🌼n way to fight inflation, then a company could potentially see its financing costs climb as the value of t🦂he dollars it's bringing in decreases.

Although this double trap is less of an issue for companies that can pass higher costs forward, inflation also has a dampening effect on the consumer. A rise in interest rates and inflation combined with a weak consumer can lead to a weaker economy, and in some cases, 澳洲幸运5开奖号码历史查询:stagflation.

Model Risk

澳洲幸运5开奖号码历史查询:Model risk is the risk that the assumptions underlying economic and 澳洲幸运5开奖号码历史查询:business models, within the economy, are wrong. When models get out of whack, the businesses that depend on those models being right get hurt𝄹. This starts a domino effect where those companies struggle or fail, and, in turn, hurt the companies depending on them and so on.

The mortgage crisis of 2♛008-2009 was a perfect example of what happeღns when models, in this case a risk exposure model, are not giving a true representation of what they are supposed to be measuring.

The Bottom Line

There is no such thing as a 澳洲幸运5开奖号码历史查询:risk-free stock or business. Although every stock faces these universal risks and additional risks specific to their business, the rewards of investing can still far outweigh them. As an investor, the best thing you can do is to know the risks before you buy in, and perhaps keep a bottle of whiskey and a stress ball nearby during periods of market turmoil.