While your portfolio may appear to be wrapped up tightly in a well-diversified safety net, there may be a hidden risk lurking within. In the video below, Motley Fool analyst Blake Bos uses the recent health scare in China at Yum! Brand's (NYSE: YUM ) KFC and McDonald's (NYSE: MCD ) to expose this hidden risk for investors. Even such companies as Starbucks (Nasdaq: SBUX ) aren't safe, but if you plan accordingly, you can minimize the impact of this unsystematic risk on your portfolio.
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Report this Comment On December 27, 2012, at 1:32 PM, snapcap wrote:
"unsystematic risk on your portfolio." I don't know what this term means. Could you please explain what "unsystematic risk" means. Thanks.
Report this Comment On December 27, 2012, at 4:40 PM, NickD wrote:
Kid worries to much for sure.
Report this Comment On December 28, 2012, at 10:59 AM, TMFBos wrote:
Great question snapcap, it refers to the risk associated with a company or industry that can be minimized by diversifying your holdings. So lets go back to 2009 for example. If you're portfolio was largely made up of Chinese based companies your portfolio had a large degree of unsystematic risk with regards to the Chinese markets. As it turns out in 2008 and 09 a large amount of Chinese companies turned out to be fraudulent reverse mergers and if your portfolio was to heavily invested it exposed you to this large unsystematic risk. Another example, if your portfolio was made up of companies who all depended on, say success in Brazil, you'd have a large degree of unsystematic risk associated with that country.
I'm not a huge guru when it comes to making sure you diversify across every sector and asset class, but do place an importance on making sure I'm not too concentrated in one geography/country that is considered developing (Brazil, India, Russia, China, etc..). I just go through each of my holdings and ask, "will this investment provide a return/succeed if it doesn't succeed in "x" market?" If every answer is the same country for "x" for each holding, then I'm probably too concentrated.
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