The recent Chinese travails of Australian mining giant Rio Tinto
Sure, financial risk grabs the headlines -- as well it should, when vertigo-inducing leverage levels can sink a company, not to mention an economy, faster than a battleship could sink a jetski. But political risk is nearly as widespread, and no less dangerous.
We're all too familiar with Venezuela's Hugo Chavez's covetous ways, which have left American oil giants ExxonMobil
Political risk isn't the sole domain of emerging economies, totalitarian regimes, or banana republics; it's a very real danger in first-world economies as well. The European Union has already shaken down Microsoft
A billion here and a billion there, and soon we're talking about real damage to a company's bottom line. This past Tuesday, Intel
Investors could reason that political risk is simply a cost of being big and successful, and doing business abroad. Unfortunately, they'd be wrong. U.S., state, and local governments might be less rapacious than their European and third-world counterparts, but they're not above extracting their own pounds of flesh, if doing so seems politically feasible. Consider the tribulations of the very legitimate, and formerly very profitable, payday lending business. It's now being slowly strangled to death, state by state, with untenable restrictions on interest charges and fees.
Standard financial risk measures should be an essential part of every investor's due diligence. But Fools should never neglect the very real, but difficult-to-quantify, financial risk posed by politicians and bureaucrats, either.
Fool contributor Stephen Mauzy, CFA does not hold positions in any of the stocks mentioned above. He's the author of the upcoming book, The Wealth Portfolio, available this fall from Prentice Hall. Intel and Microsoft are Motley Fool Inside Value recommendations. The Fool's disclosure policy regulates all Fool commentaries.