Dark secrets of share market
Stock market has some dark secrets that no broker tells. And what is more surprising is that these secrets belong to the steps taken to make money.
Let’s see how positive things turn negative
1# Commodity price risk
When price of commodity escalates, it brings joy to the companies that see commodities as output. But for companies that see commodities as inputs see loss in increased. Companies that don’t deal in commodities also face difficulties with price escalation. It is so because the customers start selling commodities. And it won’t be an exaggeration to say that commodity pricing effects the entire economy.
2# Headline risk
Do you remember the news of Fukushima nuclear crisis? This news surfaced in 2011 and it drowned all the stocks related to businesses related to nuclear power like uranium miners. It is called headline risk and no business is free from this risk. A torrent ofnews-reports regarding a business can have an adverse effect on its commodity prices.
3# Rating risk
Every business has a credit rating that affects its financing power directly and for this reason companies try hard to maintain good credit ratings. Similarly, analytics rating can affect the stock prices adversely.
4# Obsolescence risk
Every business faces the risk of becoming outdated and this risk increases with time. Company A makes a product and after some time Company B starts making the same product and offers it at a reduced price.
5# Detection risk
Officers of a company are siphoning money without getting into notice of regular auditors. Or the company starts earning money from hidden sources but remains safe in auditing. Suddenly the firm comes under the scanner of government agency. It is detection risk. If the company is detected, it faces the biggest risk of losing its reputation and loyalty of investors.
6# Legislative risk
When a company faces the risk of legislative action from a government agency it is under legislative risk. The action taken by a regulator could spoil the market image of a company. The government acts to maintain a balance between public funding and corporate investment. But its act could be detrimental to the interests of any company.
7# Model risk
Businesses work on models within an economy. If a model fails to perform, all the businesses related to that model get hit. They lose their stock value and trust of investors. This risk works as domino effect.