What are the risks with stocks?

Question

For example: I buy 1 stock in Wal-mart. Will I lose money if wal-marts stock goes down?

Answer 1

This is a very popular question in this forum. I see it often.

There are 2 basic risks.

1. There is the risk that the particular company you invest in is not a good investment for whatever reason. That is called specific risk.

2. The 2nd risk is market risk. That is the risk that the entire stock market might fall in price. That could be do to such things as the economy going into a recession for example.

Wal-mart: If you buy stock in Wal-mart and it goes down, you surely will loose money. What many investors do to minimize the risk explained in 1. is to buy shares in about 10 to 20 different companies that they believe are good investments. That way if they make 1, 2, or even 3 bad investments, the other 7+ will make up for the poor choices and then some. A rule of thumb is that if you buy 5 stocks, 1 will do really well, one will do poorly and the other 3 will sort of sit there and do nothing.

Answer 2

When I was selling cars, some people would tell me that they didn't like the idea of their "investment" depreciating so much right away. Why would that concern them. If it was an investment then that was something for the long run. The only way they "lose money" is if they sold it. Then why would someone sell a new car? Something wrong with it? It is the risk or the vulture principle at play--someone smells a disaster, so they won't offer any more than absolutely necessary, a fire sale, at your expense.

The same kind of thing is at play with stocks. The stock is selling for less than you bought it? What does that matter, unless you are wanting, needing, to sell it? Hold on to it and the value of your holdings drops--but it doesn't change your bank account or the cash in your wallet.

Gambling at Vegas means that if you put that money down for a 7 to roll at the crap table, then in a couple of rolls, maybe one, and you lose it all (at least all that you wagered). If you plunk down some cash for wal-mart, say you paid 50 and now its 44 on the way up from 42. You bought some $3 per share in earnings and a PE ratio of about 15 for a long profitable company ain't bad. You bought a 21 percent return on equity, which is really good news. You bought a 12 percent return on capital. Your company has a 24 percent gross margin. Every dollar of inventory value turns over 8 times in the year.

For all the public badmouthing and political correctness jeering, you bought into a firm with a solid set of books and a mount Everest position in the market place. So what if the stock price sags a little now and then. Your company is doing great even if the market value appears to suffer. Risk, that is when I bought Revlon (which I still have hopes for), you bought a gold bar and that ain't bad..

Answer 3

1

Answer 4

you won't lose any money before you sell any of the stocks, even if your stock price plummet. however, you can acknowledge it as a paper loss, meaning, if you sell it now, you'll lose that much.

To answer your question, these are the risks in stock market:

* Individual Financial risk.
Probability that you went broke, either because you lose your jobs or businesses. You didn't know when you get fired due to downsizing or business went down due to stiff competitions.

* Companies Business risk.
Probability that the companies that you invest in went down either due to stiff competitions, mistakes in business directions or corruptions in it's own management.

* Stock Market risk
Sometimes, the stock you invest in has nothing wrong but because the market sentiment went down, will also effect the price of your stock.

Risk is everywhere. In stock investment, it is not about avoiding risks that matters, but rather reduce the risks to the lowest level right from the dollar you cash in till the dollar you cash out.

Answer 5

While you own the stock, any gains or losses are only on paper. You will only lose money if you sell for less than you paid. While you own the stock, you need to be prepared for ups and downs and not stress out over them. If you buy stock in big, well-established corporations (like Walmart), you will not be running the risk of losing all your money (these corporations will not be going out of business).

Another option is buying a stock mutual fund (Vanguard and Fidelity have many good choices). In a mutual fund, you own stock in many companies; so it is less risky than just owning stock in one or two companies.

Good luck!

Answer 6

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Answer 8

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You, me and everyone else in the world use hand soap, toothpaste, laundry soap, dish soap, shampoo etc every day. We use it up quickly and need to buy more. Who are the manufacturers/distributors of such products? Proctor & Gamble not only has made money for many years, but they have made enough to be able to raise their dividend each year for the past 50 years. Other makers - Colgate Palmolive, Unilever, Dial, Clorox. I would hold off on big banks until the sub prime mortgage mess gets overwith. There are 2 smaller regional banks (not very involved with the sub prime mess) that I like. Regions Financial (best bank management in the business, grows by taking over other regional banks and increasing efficiency) and New York Community Bancorp. Electric utilities - some are good, some are in states with very hard state regulators. Stay away from Illinois. Southern Co., MDU Resources, and Duke are very good imo. Low risk is natural gas pipeline companies like Piedmont Natural Gas, Atmos Energy, WGL Holdings, Questar (symbol STR, a Utah gas utility plus gas exploration/production/pipeline company). Railroads are also low risk, low enough for Warren Buffet to like them. 3M corporation makes post it notes and thousands of other products they sell all over the world. They are also increasing their Research and Development spending. I don't think they will be in any trouble for awhile (unlike high risk General Motors someone else mentioned). I don't like Pfizer any more, it's pipeline is not nearly as good as in years past.

Answer 9

say you buy 100 shares of walmart stock for a dollar each. then the stock drops 10 points, thats means you just lost $10. then tommorow, it goes up 20 points, so you made $20, and you now have made $10 in pure profit with out doing anything. it goes up another 80 points, so now you have made $100 in pure profit. but suddenly, walmart goes under, so that means that you lose all the money you had in those stocks.

i dont recomend walmart stock, i recomend minerals, like gold, silver and platnum, cus they are never gonna just disappear, they will always be in demand
(ask a stock broker, or banker fo more advice)

Answer 10

Yeh you are buying a share in the company if they do bad their price goes down.....the risk is you could lose some or all of your money. A trust invests in many companies & the spread across various sectors is much safer.