If a sudden change in a company's fortunes leaves you blindsided, you could find yourself -- and your investments -- in a world of trouble. Especially in today's volatile markets, it's more important than ever to keep a close eye on the stocks in your portfolio.

To stay current on the businesses you own, make sure to at least read your companies' annual reports. If you've got the time, follow them in the news as well. This will serve you particularly well with small companies, whose performance and standing can change more quickly than that of their larger counterparts.

Proceed with caution
Think you can afford to be asleep at the wheel while steering your portfolio? Here are a few examples of unexpected threats that could catch businesses and investors unaware:

  • Thanks to their main customer demographic -- fickle teens -- apparel retailers such as Abercrombie & Fitch (NYSE:ANF) tend to go in and out of fashion. If a new trend sweeps their clothing out of favor, their shares could follow suit.
  • Even a stalwart blue chip such as Hillenbrand (NYSE:HI), owner of the 125-year-old Batesville Casket Company, faces challenges. Cremation has grown in popularity in recent years, and discount retailers such as Costco (NASDAQ:COST) and Wal-Mart have begun offering inexpensive caskets.
  • Since taxes seem as likely to stick around as death, many investors might have assumed that H&R Block (NYSE:HRB) was guaranteed a golden future. But the traditional tax preparer now faces pressure from Intuit (NASDAQ:INTU), whose software and web-based services let users file their own 1040s at home.
  • Warren Buffett loves beverage stalwarts such as Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP), because he's fairly certain that the soft drink industry will enjoy continued growth. But the Oracle might have overlooked these companies' huge and lucrative inroads into the bottled water market -- endeavors now threatened as consumers cut back on bottled water consumption because of environmental concerns.

With dangers like these always looming, you need to stay vigilant with your holdings. It's important to seek companies with competitive advantages -- but more important to ensure that they manage to keep them.