We have come to the fifth part of this series on investment risks.
You can read the preceding four parts here – Part 1, Part 2, Part 3 and Part 4.
This section will discuss social risks and how these may impact a company, industry or country.
Major social issues
If major social issues are being debated by the government or in the media, investors should find out more about them as these issues may have a significant impact on their investment.
One example is the persecution of minority races.
Such behaviour may cause widespread social unrest, trigger potential violence, and dampen consumer demand (as people are afraid to venture out).
Another social issue is the one-child policy in China which was recently scrapped.
The country now allows couples to have up to three children due to a steep plunge in birth rates.
Such a policy has long-term implications for companies selling products for babies, infants and young children as more couples may decide to have a second or third child.
A history of civil unrest
It should be immediately obvious to an investor that a country with a history of political or civil strife makes for a poor investment climate.
A careful study of the country’s history concerning civil unrest should help determine if it is suitable for long-term investment.
Unfortunately, countries such as Syria, Libya and Myanmar have undergone bouts of civil unrest in recent times.
Companies that have investments or operations in these affected countries, such as Yoma Strategic Holdings Ltd (SGX: Z59), will be severely impacted.
Public’s attitude toward share investing
Take note of the general sentiment of the public towards share investing.
If the mood is overly optimistic, investors may wish to step back and re-evaluate their investments to ensure they have a requisite margin of safety.
Over-optimism can push the valuations of companies to unsustainable levels, thus greatly reducing the potential return for investing in such companies.
The role of social media
Does social media play a major role in the dissemination of information and news?
If the answer is “yes”, then the circulation of fake news or rumours may be prevalent and may result in higher volatility in listed securities in that jurisdiction.
You have to make sure that you get your facts right to take advantage of buying opportunities created by rumour-mongers or fake news websites.
You also have to be extra diligent in checking and rechecking the facts gathered to ensure they are not affected by social media noise.
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Disclaimer: Royston Yang does not own any of the companies mentioned.
The post 6 Investment Risks You Should Know Before You Buy Stocks: Part 5 appeared first on The Smart Investor.
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