6 Investment Risks You Should Know Before You Buy Stocks: Part 2
By The Smart Investor  •  June 24, 2022
My previous article discussed the management risks that an investor should look for. Management risks represent one of six categories of major investment risks. The other five categories include i) Industry and Competitive Moat ii) Political iii) Economic iv) Social and v) Legal/Regulatory. Part two will now look into the risks relating to the industry and competitive moats surrounding a company. Industry resilience When considering an industry to invest in, you should find out how resilient the industry is to economic shocks and/or a sharp fall in demand for the product/service. Industries that experience sharp rises and falls in demand can have a devastating effect on the companies within it as they would need to scramble to adjust their inventories accordingly. If factories were built for a high level of demand but this does not come through, these plants have to be moth-balled and the company would incur costs without any revenues to show for it....