Any stock having Business Risk is avoidable, as
it is unlikely to provide consistent and sustainable profitable growth. If one has stocks having
Business Risk, one must exit from those.
Some stocks having Business Risk have been highlighted under earlier risks.
CMP: 1123 | ₹47 K (4.5% of Portfolio)
CMP: 652 | ₹12 K (1.1% of Portfolio)
Companies with poor fundamentals and weak business models are unable to deliver consistent and sustainable profitable growth. Investing in such stocks exposes your portfolio to business risk. The company's poor performance could be the result of low or no sales growth, poor margins, inefficient management, inefficient capital allocation, etc.In the short term, it is possible that even substandard business gives temporary returns. But in the long term, a company's performance is reflected in its stock returns. As rightly said by Benjamin Graham, the father of Value Investing, “In the short term the market behaves like a voting machine, but in the long term it acts like a weighing machine.“
Invest in a business that behaves like a compounding machine; companies that perform consistently and have sustainable earning power. Such performance will translate into higher market values and earn you compounded returns.
Even large or prominent companies are not immune to business risk. Investing in companies with business risk means you run the risk of loss of value from falling prices. The returns generated by buying healthy companies can be wiped out because of such bad investments.