Company-Specific Risk and Diversification

While it may be tempting for investors to attempt to identify the “best” companies and to create a concentrated portfolio with those stocks, even the most stalwart and profitable companies can carry significant idiosyncratic risk.  Changing consumer trends and ill-timed capital expenditure decisions, for example, have the potential to decimate immensely successful industry leaders like Sears and General Electric.  Potential regulatory risks facing companies like Facebook, Amazon, and Airbnb, similarly, are not necessarily reasons to avoid investing in the companies, but rather a reason to diversify away company-specific and industry-specific risks by sculpting a well-diversified strategically allocated portfolio.

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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management