Stock market trading can be a difficult and risky process. Investing here is not for the faint of heart, especially for those with less disposable income. Some stocks are clearly a higher risk than others.
Consequently, it is important to ask yourself whether you are willing to venture into some risks with your money to determine if the stock market is right for you
If you are a risk adverse person whose stomach churns when taking chances with money, then you should probably avoid the stock market altogether. However if you don’t mind at least some risk, investing at least a small portion of your money might not be a bad idea.
Of course there are innumerable investment options outside the stock market that are lower risk, such as CD’s and mutual funds. So it is not like publicly traded stocks are your only investment choice. Don’t allow yourself to be pressured into ANY investment you’re not comfortable with.
Business risk –Some business operates in industries that are highly volatile or competitive in nature. Think of the personal computer hardware industry. The profit margin can be very low and unless you have strong distribution channel or retail network, it is very difficult to stay viable in this market. Airline industry is also another highly competitive industry. It needs very high capital expenditure to stay in the business and the operating cost is also very high due to the high volatility of jet fuel cost. Airline needs to run a highly efficient operation and strong marketing strategies in order to generate decent profit. On the other hand, public transport operator such as mass transit operators typically have very stable business environment even during an economic downturn. If we understand the business the company operates in, it can help to significantly reduce their level of risk exposure.
Corporate governance —It is common knowledge that behind every good company lies a strong and capable team of people managing the company. Is the business run by capable and honest leaders with a high level … Read the rest...